PIMCO's Bill Gross Writes Equities Obituary in August Newsletter

Co-Chief Investment Officer and Co-Founder of PIMCO Bill Gross asserts that stock investing is "dead as we know it" in his August investment letter. Pacific Investment Management Company has $1.82 trillion in assets is the world's largest bond mutual fund. "If financial assets no longer work for you at a rate far and above the rate of true wealth creation, then you must work longer for your money," Gross wrote. Gross took particular issue with the Siegel constant of 6.6 percent return from stocks, calling the past percentage return “[a] historical freak, a mutation likely never to be seen again as far as we mortals are concerned.” Earlier this month Gross predicted real GDP growth at 1.5 percent for the next decade. Based on this assumption, investors should get used to smaller investment returns. Jeremy Siegel, a Wharton finance professor took exception to Gross's comments on CNBC Tuesday. Siegel said, “Gross is basically being misleading with his comparison, because total return of the stock market is not appropriate to compare to GDP. You definitely can have a return greater than GDP growth. There is nothing uneconomic about it.” “The thing is that capital gives out dividends, it gives out interest, it gives out return. When you add that all together, it's going to be greater than GDP growth. Even in a non-growing economy, you have situations where return is greater than GDP growth.” The bond manager was not just criticizing the equity market but had equally harsh words for bond investing. “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 wrote. In the current environment of low interest rates, investors should expect “mere survival” from an investment in bonds. Long term bonds with 55 percent yield currently should provide little solace in expecting past higher yields and “will replicate the performance of decades past.” Gross indicated that investors following momentum-chasing stocks and bonds based on a 30 year bull run are setting themselves up for a fall. In his August letter Gross stated that the only “magic potion” policy-makers have to get higher returns is through pro inflationary environment. He noted, inflationary policy may work for bonds, but would have a negative impact on stocks. “Unfair though it may be, an investor should continue to expect an attempted inflationary solution in all almost all developed economies over the next few years and even decades,” Gross wrote. “The cult of equity may be dying, but the cult of inflation may have only just begun.” Is it possible we are headed for another bull run? Probably not, considering the all the uncertainty throughout Europe and in the United States. According to data compiled by Bloomberg Pimco's Total Return Fund gained 7.3 percent during the past year. The gain beat 73 percent of its peers.