By Sam Forgione
NEW YORK Dec 4 PIMCO's Bill Gross, in his final
investment letter of the year, reiterated his sober outlook,
saying "there may be no miracle policy drugs" for structural
impediments to recovery in the U.S. and global economies.
"The real cause of slower economic growth lies hidden in a
number of structural as opposed to cyclical headwinds that may
be hard to reverse," Gross said in his December investment
outlook released on Tuesday.
The co-founder of Pacific Investment Management Co and
manager of the world's largest bond fund said the diminished
economic growth outlook will mean reduced returns from stocks
and bonds, something Gross knows better than most.
Gross, whose firm had $1.92 trillion in assets as of Sept.
30, said future annualized bond returns will likely be in the
range of 3 to 4 percent "at best," while equities would earn
returns "only a few percentage points higher."
In a commentary entitled "Strawberry Fields - Forever?"
Gross reached to the Beatles for inspiration and the song's
unsettled depiction of everyday life.
"As John Lennon forewarned, it is getting harder to be
someone, and harder to maintain the economic growth that
investors have become accustomed to."
Gross cited the difficulty of paying for college, retiring
comfortably and maintaining a good standard of living.
"The New Normal, like Strawberry Fields will 'take you down'
and lower your expectation of future asset returns. It may not
last 'forever' but it will be with us for a long, long time," he
Gross cited high debt-to-GDP ratios, the economic slowdown
in China, technology's replacement of jobs and the aging
workforce as "structural headwinds" that could reduce economic
growth to less than two percent in developed economies
"We may need at least a decade in the healing," Gross wrote
in reference to the developed world's need to reduce its debt.
He added that households should focus on increasing savings
while financial institutions should expand their capital base.
Gross, whose flagship PIMCO Total Return Fund has over $281
billion in assets, also made reference to Federal Reserve
Chairman Ben Bernanke's confirmation, during a speech on Nov.
20, of PIMCO's "New Normal" view of just 2 percent U.S. economic
In recent outlooks, Gross has said that the Fed's
bond-buying programs have failed to revive the U.S. economy and
that looming inflation could weaken returns on both stocks and
Gross said cheaper natural gas stands out as a "boon" to
economic growth and recommended investing in assets such as gold
and oil, non-dollar emerging market stocks and high-quality
municipal bonds while avoiding high-yield bonds, bank and
insurance stocks and long-dated bonds in developed countries.