Salient to Investors:

Jay Schwister at Baird Advisors said Pimco underestimated how big the policy response would be and what type of positive impact it would have on financial markets, despite the new normal they forecast is playing out.

Saumil Parikh at Pimco said policy distortions cannot continue indefinitely, so 2013 will see a year of reversion to the medium-term ‘new normal’ view for both the economy and financial markets.

The MSCI All-Country World index returned an average of 4.6 percent in the past 3 years.

The average economist expects yields on 10-yr Treasuries to rise to 2.14 percent by the end of 2013. The median economist expects GDP to expand 2 percent in 2013.

The median Wall Street strategist expects the S&P 500 to gain 6.4 percent in  2013 versus an average of 15.3 percent in the 10 years ending in 2000.

Junk debt earned 15.6 percent in 2012 versus the yearly average of 11 percent in the 1990s. Debt backed by subprime home loans issued before 2007 gained 41 percent on average.

Tad Rivelle at TCW Group said central banks wrote the ticket for bond markets in 2012, and will again in 2013 with quantitative easing and stimulative monetary policies. Rivelle favors mortgage securities without government backing, leveraged loans, and emerging-market debt.

Quincy Krosby at Prudential Financial said some of the biggest moves in the market in 2012 came after policy announcements – the new normal is markets predicated on central-bank action.

Almost all of Wall Street’s calls were wrong in 2012 as they failed to anticipate how government actions would influence markets.

Bill Gross at Pimco warned of the long-term inflationary thrust of such check writing, maybe not in 2013, but beyond.

William O’Donnell at RBS Securities said the economy is not strong enough for the Fed, so expects another year of new normality, real GDP growth of 1.75 to 2

Laurence Fink at BlackRock said stock market gains may be muted in Q1 as Washington struggle to resolve deficits and the economy grows less than 1 percent, but equities will rally as much as 10 percent in 2013. Fink said long-term fundamentals of American corporations are very strong, and the American economy is as positive in terms of housing, energy, banking system as he has seen – great fundamentals seen in no other country.

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