Writing in his latest monthly investment outlook Gross said that major global policy shifts that move the world away from austerity and emphasise government spending are needed to realign the global economy’s financial spine. But, he does not expect that to happen.
From an economic point of view, the major problem is that there is too little aggregate demand and too much aggregate supply. And, while China needs to move quickly to a consumer based economy, the developed world must play its part “by abandoning its destructive emphasis on fiscal austerity, and begin to replace its rapidly decaying infrastructure that has been delayed for decades,” Gross said.
For investors, however, the problem is that such a move is unlikely to happen. Indeed, Gross said: “Global fiscal (and monetary) policy is not now constructive nor growth enhancing, nor is it likely to be.”
As a result, he said, future returns from the equity market are likely to be limited, if not downward sloping, while high quality global bond markets offer little reward relative to durational risk. Nor, Gross adds, are private equity and hedge related returns likely to be strong if global growth remains anemic.
All of which leaves, cash or, he says, or better yet ‘near cash’ instruments.
But, as he points out, while the reward is not much, there is reason to be focusing more on the return of money rather than the return on money.
“In the long run though, the return of your money will likely not pay for college, healthcare, or retirement liabilities. That is the near global conundrum we are faced with as near zero percent interest rates limit capital gains in the future, and if raised too high, will lead to redzone losses.”
