PIMCO’s Bill Gross hits it out of the park in his August Investment Outlook, released today.
He destroys the assumption that the long-term 6.6% return in the S&P 500 can continue:
Today’s initial conditions which historically have never been more favorable for corporate profits. If labor and indeed government must demand some recompense for the four decade’s long downward tilting teeter-totter of wealth creation, and if GDP growth itself is slowing significantly due to deleveraging in a New Normal economy, then how can stocks appreciate at 6.6% real? They cannot, absent a productivity miracle that resembles Apple’s wizardry.
Normally, Gross would then tell everyone to buy bonds, but he rips that asset class even worse:
With long Treasuries currently yielding 2.55%, it is even more of a stretch to assume that long-term bonds – and the bond market – will replicate the performance of decades past.
Gross argues that the only way out is inflation:
An investor should continue to expect an attempted inflationary solution in almost all developed economies over the next few years and even decades.
For FX traders, a burgeoning era of inflation will ensure that high levels of volatility continue. Central bankers will repeatedly be tested and money will skip around the globe.
