Skip to comments.Bill Gross: We’re Witnessing the Death of Equities
Posted on 08/01/2012 4:34:00 PM PDT by TigerLikesRooster
July 31, 2012, 3:03 PM
Bill Gross: Were Witnessing the Death of Equities
By Steven Russolillo
The bond king says stocks are dead.
Bill Gross, Pimcos co-founder and co-chief investment officer, says stock investors should think again about the age-old buy-and-hold investing mantra. He says consistent, annual returns are a thing of the past.
The cult of equity is dying, Bill Gross wrote in his August Investment Outlook. Like a once bright green aspen turning to subtle shades of yellow then red in the Colorado fall, investors impressions of stocks for the long run or any run have mellowed as well.
Gross points out stocks have averaged a 6.6% annual gain on an inflation-adjusted basis since 1912. But he labels that rate of return as an historical freak that isnt likely to be duplicated anytime soon, due to slowing economic growth around the globe. From Gross:
(Excerpt) Read more at blogs.wsj.com ...
In our US debt regime heading toward repudiations of debt (”haircuts,” whatever), bonds are like zombies, too, by the way: walking dead.
A bold statement considering the last time it was issued: 1981 cover of Business Week Magazine.
Back then, we had very high interest rates; a viable alternative.
Now there's no return on cash.
But there's always something going up, gold, gas, tech stocks, health care services, oil field services etc.
Find one going up and ride it.
He’s just annoyed that the Fed hasn’t injected another dose of counterfeit money into the markets. That’s all that’s kept them rising for years, now.
Let’s see now... Gross is in the bond business. Equities compete with bonds for capital and represent competition.
Gee... Not hard to figure out where his loyalties lie!
No, I think there is a recognition among astute professionals like Gross that the equities markets are clearly dysfunctional, and so is the sell-side “analysis” being pitched at investors.
I can expand further upon this if you wish....
Yeah right Bill.
How’s that Dow 5000 prediction working out for you? The Dow is up almost 100% since March 2009 when you made that prediction. I’ve worked in this business a long time; better you stick to the predictions in your specialty, bonds. I could even say this prediction of yours is pretty self-serving. The more you trash equities the more fees you collect on your own managed funds.
whole lotta confiscatin' goin' on!
Then why is PIMCO opening up equity funds? If he were true to his beliefs he would be rolling them up or selling them to another fund family. Sounds like a case of do as I say, not as I do . . .
Mommy! He scares me!
The 6.6% real return belied a commonsensical flaw much like that of a chain letter or yes a Ponzi scheme. If wealth or real GDP was only being created at an annual rate of 3.5% over the same period of time, then somehow stockholders must be skimming 3% off the top each and every year. If an economys GDP could only provide 3.5% more goods and services per year, then how could one segment (stockholders) so consistently profit at the expense of the others (lenders, laborers and government)?I know he's a smart fellow but I don't think he understands wealth creation. I think he's an economic Malthusian.
Could be wrong, admittedly.
If Bill Gross says equities are dead, 2013 will be a huge year for equities! Do the opposite of what Gross recommends and you’ll be rich.
But there's no way someone could be that transparent about it, right?
Food, Energy and Medicine will always be in demand... and if those companies collapse... better have a safe fortified compound and a bunch of weaponry... because civilization will be dead.
Gross has done a good job running PIMCO funds but he is a bond guy and even then his prediction 1 1/2 years ago was dead wrong when he said the bond market was going to falter and he unloaded long term bonds from all his funds. He missed the big bond market move upwards, admitted he was wrong and went back into long term bonds. I think he is half right this time. Equities in the West especially Western Europe will not keep pace with the emerging market countries as Western wealth continues to move into these emerging nations. You have to be cautious going forward in which international equity markets you invest in.
Bernanke himself said the Dow would be at 6,000 now if it wasn't for Fed pumping. One big, dangerous, house of cards.
Finally, when a guy like Bill Gross says "equities are dead", he doesn't mean a stock market crash. He means don't count on a 6.6% rate of return any more.
The "uncertainty of riches" lets you down in the end. Maybe you have to be really, really lousy with riches, like me, to find an oasis in this verse. But I think any of the worries we have in this world are swept aside with "but on God, who richly supplies". I need GOD, and HE is there for me (and you)!
“Equities aren’t dead any more than they where dead in 1929, but I believe the current bull market is based on a house of cards, namely, the Fed printing all that money and pumping into the system.”
One thing any investor can’t ignore is the fact that the income/returns are being skewed by unreported inflation. If $100 today will get me $200 in a year, but gasoline costs $15 per gallon at that point, I didn’t even beat inflation with my 100% return. I have limited knowledge of investing, but know enough about risk. What many investing professionals called “currency risk” (when investing in foreign investments) is no more dangerous than the inflation risk in domestic products.
I’d think the bond market is heading for its own problems, as mortgages become a thing of the past. People who have stopped breeding, who don’t know where they’ll be working three months down the road, see little reason to commit to a growing property tax bill in municipalities with little hope of meeting their retirees’ costs. What 25- to 30- year old American needs a house today?
For equities, it all depends upon the price. When the price is right, when stock-performance lassitude combined with still-growing earnings makes the discount steep enough to provide traction for a new long-term bull market, equities will come alive again.
That said, Gross is making his comments when the S&P is close to a four-year high. The averages have been in a very long term range since 2000. Unless anyone here has some good reason to expect kick-start growth in corporate profits, they should consider that 12-year range. Suffice it to say, the S&P looks toppy right now.
Sure, Gross' remarks are a lot like the Mathusian malaise talk that was last popular in the '70s. But if he were the stereotypical foot-in-mouth boy that some seem to think he is, he'd be bemoaning the stock market at the lower end of the 12-year range (like he did in '09.) In the shorter term, his timing may be pretty good. And, sad to say, the "new normal" phase is still in place - and may be for several more years. The last range-bound market lasted from '66 to '82: sixteen years.
[And we all know who got elected President in '80. Suffice it to say, his likesake ain't on the ticket in '12.]
That seems to be the default mode of Wall Street. They talk one way, manage another.
I’ve been through this with a money manager. His columns in Forbes were a better reflection of what worked in the market than how he actually managed client money.
Gross expounded on this today on CNBC. He says that the adage of equities outperforming bonds over time no longer holds.
The stats Gross used on both sides are 100 year performances. But his time frame, now, and the comment above is for the next ten years.
Thank you for clarifying with more context.