After the big slump in markets in recent months and the growing fears of a double-dip recession, it would be churlish not to admit that 2010 has belonged to Pimco’s Bill Gross.
The man who proclaimed the ‘New Normal’ would be Japanese-style returns of a few percent a year says the markets stand today on “the threshold of mediocrity”.
He has produced the following chart to show how a 60/40 equity-bond split is no longer producing the returns of the 1990s:
2009's 5-year annualised return from 60% shares/40% bonds is 4%
I’m not wildly enthused by Gross’ findings, you’ll not be surprised to hear. I totally agree that Government bonds yielding 3-4% aren’t going to do much over the next decade, which is why I don’t own any!
As for equities, however, Gross should know that recent low returns make higher returns in the future more likely.
To believe anything else is likely over the next few years means reading the economic tea leaves, getting a poor result (I expect a positive outcome), and then correlating your poor expectations with poor market returns, which is an uncertain leap at best.
(Source: Bloomberg)
