Pimco’s Bill Gross: Easy investor gains in stocks are ending

The days of easy double-digit gains in stocks and other securities are coming to an end, says Pacific Investment Management Co.’s Bill Gross, one of the world’s best-known bond managers.

But bonds, he said, are still “critical components of an investment portfolio.”

In an investment letter posted on Pimco’s website, Gross drew an analogy to the classic 1963 Steve McQueen film “The Great Escape,” in which American prisoners of war are trapped in a German prison camp during World War II.

There, “the living conditions were OK,” Gross said, “but certainly not what they were used to on the other side of the lines.”

And that, to him, represents the situation investors are in now: “locked up in a financially repressive environment that reduces future returns for all financial assets.”

Gross — who manages the $252-billion Pimco Total Return Fund — explained that global inflation is coming amid rampant credit expansion. Low interest rates may not be around much longer to serve as a crutch.

The market has been spooked by “financial wizardry” and “tired policy maneuvers that bring future wealth forward,” but transitioning to real growth will be difficult, he said.

Gross suggested that investors back off from derivatives and borrowed money as a core strategy. Treasuries, he said, will earn an inflation-adjusted return of negative 2% to negative 3%.

But bonds — even when they’re returning 4% annually instead of 10% — are an investor’s friend because of their stability, he said.

Gross also now favors shorter-duration and inflation-protected bonds. Safe, dividend-paying stocks with presence in the developing world are preferable to growth stocks like Apple that rise on future projections, he said.

Inflation-sensitive commodities in tight supply, as well as other real assets such as land, buildings and machines, are also a good bet, he said.

Pimco is based in Newport Beach.

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