Bill Gross, managing director of Pacific Investment Management Co. (or PIMCO) takes a lot of heat for talking his book – that is, advocating positions that benefit his heavy weighting in bonds. However, his monthly notes are must-reads, and the latest edition is getting a lot of attention.
Here’s a snippet that follows his forecast that the Federal Reserve will hold rates near 0% until the economy posts 4% or more growth for 12 to 18 months:
“...the total bond market yields only 3.5%. To get more than that, high yield, distressed mortgages, and stocks beckon the investor increasingly beguiled by hopes of a V-shaped recovery and ‘old normal’ market standards. Not likely, and the risks outweigh the rewards at this point. Investors must recognize that if assets appreciate with nominal GDP, a 4% to 5% return is about all they can expect even with abnormally low policy rates. Rage, rage, against this conclusion if you wish, but the six-month rally in risk assets – while still continuously supported by Fed and Treasury policymakers – is likely at its pinnacle.”