Pimco Says ‘Great Moderation’ Is Over as Extremes Drive Returns

Investors will make money based on their ability to anticipate extreme events after the end of the period of stability known as the “Great Moderation,” said Richard Clarida of Pacific Investment Management Co.

The Great Moderation, an era from 1987 to 2007 of “predictable policy, low inflation, and modest business cycles,” allowed investors to make money using debt to magnify profits on bets that actual outcomes would match the average of a range of possibilities, Clarida wrote in an article today on the Web site of Pimco, which manages $1.1 trillion.