The New Normal as PIMCO and other economists would describe it was a world of muted western growth, high unemployment and relatively orderly delevering. Now we appear to be morphing into a world with much fatter tails, bordering on bimodal. It’s as if the Earth now has two moons instead of one and both are growing in size like a cancerous tumor that may threaten the financial tides, oceans and economic life as we have known it for the past half century. Welcome to 2012.
Followed by some actionable advice
This new duality – credit and zero-bound interest rate risk – is what characterizes our financial markets of 2012. It offers the fat-left-tailed possibility of delevering - or the fat-right-tailed possibility of central bank inflationary expansion.
The dollar is king with a left-tailed delevering scenario – pauper in a right-tailed global reflationary expansion.
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