PIMCO’s Bill Gross has weighed in with his thoughts about where the economy is headed next. The U.S. markets, along with exchange traded funds (ETFs), may experience an easy going first half, but the second half may be an entirely different story.

PIMCO Managing Director Bill Gross believes the first half of the year will be relatively strong, but he points to the second half as a period when investors will see poor economic growth and a Federal Reserve that won’t offer much relief, writes John Curran for Time.

In an interview with Time, Bill Gross has revealed his thoughts about what’s ahead for the year:

  • Gross believes the first half will be aided by government stimulus and either by inventory accumulation or lack of inventory liquidations. He projects a 4% expansion in the first half, followed by a 2% growth spurt in the second half. The lower growth is what may require the Fed or the government to jump in with another round of stimulus measures. ETF Play: PowerShares DB U.S. Bearish (NYSEArca: UDN)
  • The Feds have suggested they want to pull away from from buying bonds; however, according to PIMCO’s forecasts, the Fed will likely need to re-initiate the buying programs in the second half. Gross also notes that “it’s a near impossibility to unload what they’ve purchased over the past 12 months.”
  • The result of the renewed Fed activity would put upward pressure on interest rates. The mortgage market is thought to be the first place that would become normalized. ETF Play: PIMCO 7-15 Year U.S. Treasury Index (NYSEArca: TENZ)
  • Treasuries may not be always be the safe haven investors have expected. Reasons include America’s sovereign risk, over-owned U.S. dollar and comments from China and others who have become inundated with Treasuries.
  • This doesn’t mean cash will be the best asset class. PIMCO will likely try to substitute Treasuries with sovereign bonds of higher quality. ETF Play: SPDR Barclays Capital Short-Term International Treasury Bond (NYSEArca: BWZ)
  • Gross expects the new “normal” world growth, profit growth and returns on almost all assets will be half of what they use to be. The market will have to adjust to the new norm.
  • If there is a second federal stimulus package, the markets will be better off in 2010, adds Gross. He even expects another one, but it probably won’t be as large as the last one.

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Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.