What did PIMCO conclude about the outlook for stable disequilibrium?
McCulley: The central conclusions of the Secular Forum were (1) the reflationary policies pursued by global central banks so far this decade have been successful—global growth is strong and deflationary risks have been truncated; and (2) the ongoing removal of those policies makes the stable disequilibrium a little bit less stable, with imbalances becoming more important going forward. Central banks are pulling back from being warm and fuzzy. The Fed has obviously pulled back massively, and the Bank of Japan is just about ready to start. We are also seeing a very slow but gradual appreciation in China’s currency. And that implies that we are going to have an economy that is going to become more fragile, because risk premiums will be restored in a lot of risk assets around the world. As Bill Gross said in his Investment Outlook, Bretton Woods II may be morphing into Bretton Woods III. And the point is that Bretton Woods III is not going to be as stable as Bretton Woods II because we wil
