Preparing For Economic Headwinds: Bill Gross’ Commodity Picks

In his most recent investment outlook, aptly titled “Strawberry Fields – Forever?”, legendary bond king Bill Gross warned that Americans should be prepared to face some “structural economic headwinds” in the next few years that will likely frustrate almost all of us. Besides the damages still felt by the financial crisis, diminished productivity gains and the looming fiscal cliff, Gross points out that are other glaring red flags that investors should keep their eyes on, as these critical factors will likely hamper economic growth in not only the United States, but also in other developed nations across the globe [for more commodity news and analysis subscribe to our free newsletter].

In order for real economic growth to exceed the lackluster figures we see today, Gross identifies four structural economic headwinds that we must overcome: debt, globalization, technology and demographics. The debt issue is perhaps the most obvious one, as the reduction of our nations’ and the eurozone’s debt piles will be felt by all for years to come. Globalization and technology being identified as “issues” may be surprising to some, as these two phenomenons usually have more positive connotations. Though globalization has certainly been a “historical growth stimulant,” the vast and complex web of interconnected relationships have also hindered us, as economic turmoil in one nation almost always spills over into the next [see also A Deeper Look At America's Commodity Industry].

Technology too has been a key factor in propelling our global economy, but with that comes the sacrifice of millions of workers being replaced by machinery and robotics. This “technological unemployment,” more commonly referred to as structural unemployment, may be what prevents us from reaching levels close to our full potential, or even some sort of economic relief. In regards to demographics, Gross notes that the aging population found in most developed economies will likely lower productivity and employment growth rates, as well as personal consumption.

Gross’ Picks For Weathering The Storm

In response to what exactly investors should be doing to protect their portfolios for the “structural economic headwinds,” Gross puts an emphasis on pinning down those investments that can produce real returns, namely commodities such as oil and gold [see also Gold And The Fiscal Cliff].

He points out that the United States is on track to become energy independent in the next ten years, and that reversing or even containing the 40-year upward trend in energy prices may be key to boosting productivity and economic growth. For those who are in the bond king’s camp, which likely is almost everyone, keeping a close eye on oil and gold may certainly be worth while.

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Disclosure: No positions at time of writing.