Investment returns will fall from historical averages as the
last decade's trend toward increased liquidity and deregulation,
which "once pumped asset prices and favored the production of
paper, as opposed to things," is reversing, said famed bond-fund
manager Bill Gross.
The commentary Tuesday from the Pacific Investment Management
Co. managing director comes during ongoing debate over how to boost
the U.S. economy as speculation mounts that it could see a
double-dip or long period of tepid growth.
Gross, in his monthly missive on the Pimco website, said a "heap
of trouble" lies ahead for those expecting more than low investment
returns. He argued the investment industry faces a correction
because asset prices reached unsustainable heights during the
dot-com and housing bubbles.
Gross said moves such as consideration by Ken Griffin, head of
hedge-fund firm Citadel, to cut fees and the departure of famed
manager Stan Druckenmiller reflect the hedge fund industry's
broader woes.
The best path toward renewed prosperity would be "the good
old-fashioned route" of investment in production, Gross argued.
Nevertheless, he said such measures would take "a long time and an
increase in political courage not seen since Ronald Reagan or
FDR."
More likely, Gross said, is a program of low interest rates and
quantitative easing from the Federal Reserve while Washington runs
near-double-digit deficits as a percentage of gross domestic
product.
-By Matt Jarzemsky, Dow Jones Newswires; 212-416-2240; matthew.jarzemsky@dowjones.com