“Equities have reached a dead end in terms of significant appreciation,” Gross said. “Equities are still alive, but the cult of equities is dying.”
“Ultimately that’s good for bondholders but in the short run that means higher interest rates,” Gross said.
Transcript via [CNBC]:
first, we may be up today, but the consult of equity is dieing and you can say goodbye so the days of consistent annual returns.they are a thing of the past. according to pimco’s cofounder, bill gross. what is behind the bond king’s fall? he joins us now.welcome back, bill. hi maria, hi bill. your call is witnessing thedeath of equities, why death? not death of equities, but the death of the quality of equities and the quality of bonds basically over the past 10 to 20 years that suggested that double digit return social security what we were due. all i’m suggesting going forward is that the consult, which was a boomer type of consult, a 20, 30, 40, 50-year-old consult, in terms of generational boom, that that should be more realistic, they should expect less than 10%. they should know that corporateprofits as a percentage of gdp, and corporate taxes are atrecord lows, and therefore going forward double digits isprobably not what they’re going to receive. so just lower your expectations. equities are still alive, but the skult of equities in terms of double digit return social security dieing. i want to ask you what in a means and how somebody should invest. you wrote this back in late july, and people who have seen it now, it’s a well written sentence, like a once bright green aspen turning to yellow and then red in the colorado fall, investor’s impressions for the long run have mel lowed as well. to me that describes the perfect time to buy stocks, am i wrong? it might be, but it also goes on to say, bill, that from a generational standpoint that boomers who are 55 and 60 can’t afford to take equity like risk which is what they have seen over the past ten years, and generation x and generation y, like i suggested, don’t like the stock as it goes from 40 to less than 20, perhaps are influencing the trend going forward. so you need a buyer and what you’re suggesting is they should be buying and i’m not suggesting they shouldn’t, but i’m suggesting as well that from a generational standpoint their discouraged and will remaindiscouraged. i think that’s a great point. when you look back at the 90s, there was a consult like attitude. you had to be in stock. if not stocks, then what? what asset class in your view isgoing to really deliver the best returns for long term wealthcreation. if not equities, then where? i think ultimately, maria,real assets, i’m not suggests that investors go to the bondmarket, i think that bonds return 2% to 3% a year and stocks return 4 to 5. so that is relatively low. real assets, commodities, land welcome housing, they’re going for probably a better betbecause they have been run down souch and not run up as much as other financial assets have been in. so you think that will do bet ere than other classes? i think so, we had 20, 30, or40 years of an asset boom and interest rates have come downfrom 14.5% in treasuries to now 2.8%. as a person point, bonds and equities, financial assets reached a dead end in terms oftheir significant appreciation potential. so i’m suggesting let’s look to other asset categories astutes for financial assets. we have seen a rise as you well know in long-term rates. this week and partially last week, could paul ryan be partially responsible for the sell off? yes, positive results as maria mentioned, yes central bank easing from the ecb, and the swiss national bank and the fed, yes an improving u.s. economy. those are reasons why bond yields have gone up, but let’s also think about, perhaps, and i think it’s interesting, not knocking paul ryan because i’m a registered republican, in any case, to the extent that he is criticized ben bernanke in terms of the dual mandate, focussing on employment in addition to inflation, you know, going forward, if you know given a 50/50 chance of him being the vice president going forward, perhaps the selection of afuture fed chairman in january of 2014 might be related to ahard money type of outlook. that’s ultimately good forbondholders but it means higher interest rates. perhaps there is a twist there in the last few days. all right, bill. ready? what do you think about this ticket thing? i don’t want to be a political pundant. i think both sides are subject to money and super pacs. it’s a government of the super pac for the super pac, i say get the money out of politics and get a real choice going forward. to me they’re both the same. a tall order, william, always good to see you. bill gross joining us. we have thomas lee with us along with michael pimto, and rick santelli. you have to make calls on equities, the chief strategist there at jpmorgan, what’s your idea about the death of the the consult. first i have to say we have to remember that the world lowers it’s expectations. it’s closer to 6% total return. the only way you achieve that is having a good exposure to equity markets. bill says he expected stocks to double the return of bonds. it’s still below the historic norm going back to 1912 or something like that. he thinks it’s going to be more like 4%. do we have to lower our expectations — my only question is everyone’s informations are built around a foundation of flow growth. we now economic forecasts are the least reliable. if we look at the market expectations of 1.5%. ly take the over. — i will take the over. so you’re still keeps expectations up. michael, what about you? one should be very careful about making prognosticationsgoing out ten years. i would say let’s see what happens first of all with the election. if you have a fiscal monetary contraction, if romney and ryan get elected, then i expect you to have a deflation fair deflationary recession. if bernanke stays at the helm and we have a quantitative easing and they cease payinginterest on excess reserves, you have increase in the money tlie. so you have to stay tuned, you can’t just make these broad call that’s go out over a decade. okay, so your broad call onthmarket, what kind of a return to you expect from the s&p 500.let’s call it five to ten years. again, it all depends on what mac row economic environment is. is ben bernanke getting thrownout of office? will our depression occur and be allowed to purge the system. then i would say that we’re going to have maybe one or two years of very negative returns in the stock market. on the other hand, if we keep printing money and borrowing atrillion dollars plus, you will have a stagflation fair environment going out as far as the eye can see. we have construction going on here. nobody is hurt, move along. ricktelli, the news of theday, mario draghi doing whatever it takes, angela merkel, what do you make of that? i don’t care how many people give us instructions for the best way to turn strong, i’m still not buying it.i still see insolvency as insolvency. as far as mr. gross’s comments, i agree with them. i said new equalibrum. if ryan is tkingal about stocks the way he is and blaming ryan for the increase in rates, why would stocks not have gone down. it makes no sense. markets aren’t making a whole lot of sense anyway right now. i think they are. thanks. breaks news on facebook.