Tuesday, July 31, 2012

Bill Gross: The Cult of Equity Is Dying

Okay, this commentary by Bill Gross is scary.  If he's right, public pension plans with assumed rates of return of 7%, 7.5%, 8% are in for a world of hurt.  But then so is the entire investor class.




Excerpts from the Bill Gross of PIMCO Investment Commentary:


Cult Figures

•​The long-term history of inflation adjusted returns from stocks shows a persistent but recently fading 6.6% real return since 1912 - The Siegel constant of 6.6% real appreciation. 

•The legitimate question that market analysts, government forecasters and pension consultants should answer is how that return can be duplicated in the future.

•Unfair though it may be, an investor should continue to expect an attempted inflationary solution in almost all developed economies over the next few years and even decades.


"The cult of equity is dying."


"With long Treasuries currently yielding 2.55%, it is even more of a stretch to assume that long-term bonds – and the bond market – will replicate the performance of decades past."


"The Siegel constant of 6.6% real appreciation, therefore, is an historical freak, a mutation likely never to be seen again as far as we mortals are concerned."



John Broussard

Assistant State Treasurer

Chief Investment Officer

State of Louisiana

Department of the Treasury


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