Thursday, 28 Jun 2012 09:34 AM

By Forrest Jones

Global economies and markets won't see what they remember as normal times for several decades to come, says Bill Gross, co-founder of Pimco and manager of the world's largest bond fund.

Blame hefty debt burdens for the rough roads ahead, as countries can either default and spend years rebuilding their finances and credibility afterwards, or they can print money and run up inflation rates that eat up debts but deal with high prices for a while.

"What global investors, fixated on historical cyclical trends as opposed to secular delevering dynamics fail to appreciate is that economies and their financial markets historically have taken several decades as opposed to several years to renormalize once the fatal grip of too much debt wreaks havoc on the assumed perpetuity of capitalism’s prosperity machine," Gross writes in his monthly investment outlook on the Pimco website.

No major economy is immune to the global deleveraging, which should send investors looking for markets in countries with the fewest black eyes, or what Gross describes as the cleanest of dirty shirts, which includes the U.S. for now.

"There are very few clean dirty shirts in this world. Timing in investment markets is critical and at the moment the U.S. is considered to be the cleanest. That’s why Pimco owns them. But things change," Gross writes.

"A blossoming rose wilts over time. A good name can be slandered, a great opportunity to change fiscal direction squandered within a few short years. This debt crisis should be considered global as opposed to regional, and investors should recognize that clean dirty shirts are not forever thus. Over time, they may have to change their name, their rating, or at least their reputation as a clothes horse."

U.S. debts will take center stage at the end of the year, when tax breaks such as the Bush-era tax cuts expire while automatic cuts to government spending to kick in, a combination dubbed as a fiscal cliff that could derail

U.S. recovery by siphoning billions out of the economy.

Some market observers worry if people are taking the fiscal cliff too lightly, especially when it comes to their investments.

"It is unlikely that the cliff is fully priced into the markets," says Ethan S. Harris, North American economist for Bank of America Merrill Lynch, according to CNBC.

"The economic consensus and markets have recognized the fiscal cliff for some time, but are only beginning to understand the size and timing of the shock to the economy."

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