Bill Gross doesn’t exactly give you much reason to rush out to invest your money right now. In his December monthly outlook published on the PIMCO website, Gross set a very cautious tone.
Gross noted that bond investors should also consider high credit quality rather than lower quality corporates as economic growth slows in 2012. He went on to call Euroland’s problems as global and secular in nature. He thinks it will be years before the Euroland and developed nations can “constructively escape from their straitjacket of debt.”
Gross sees global growth likely to remain stunted, where interest rates remain artificially low. Gross even noted that investors are likely to remain “continually disenchanted with returns that fail to match expectations.”
As far as where to invest, Gross sees opportunity in risk assets in emerging economies, such as Brazil and Asia. He also believes in bonds in the strongest developed economies, where the steep yield curve may offer opportunities for capital gains and potentially higher total returns.
The CNBC report on the matter really dulls expectations. Gross was noted there as looking for 5% portfolio returns in the next several years. Sorry, but 5% is not going to lure new investors out. If investors can stomach taking 1% to 2% yields in intermediate-term bonds and can find 3% to 4% in dividend yield stocks, they are unlikely to take on broader market portfolio risk just to get to 5% because the risk-reward scenario is out of whack.
The good news is that Bill Gross has been wrong before. He really missed the mark on his Treasury debt exit ahead the U.S. debt rating downgrade, and he admitted that today.
JON C. OGG
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