Toward the end of Bill Gross’ latest is the following;
In the meantime, they are faced with 2.5% yielding bonds and stocks staring straight into new normal real growth rates of 2% or less. There is no 8% there for pension funds. There are no stocks for the long run at 12% returns. And the most likely consequence of stimulative government policies that strain to get us there will be a declining dollar and a lower standard of living. Stan Druckenmiller is leaving, and with good reason. A future of low investment returns, and a heap of trouble for those expecting more, is what lies ahead.
If we were watching television one of the anchors might say “wow, now I’m depressed” which is of course is the completely wrong way to come at this. Market results and market predictions should not trigger any emotional response. Most of the time the market goes up and sometimes it goes down and the thing is the vast majority of market participants realize this (it might make sense to distinguish market participants from 401k participants).
Another reason not to be depressed, besides it being illogical (if you even agree with Gross) is that what he is writing about has already happened. He mentioned 2% growth rates, well for the last ten years stocks have had negative growth rates (so to speak). The first time the SPX touched 1147 (yesterday’s close) was in July 1998. As far as 8% pension returns, that obviously is a huge obstacle with very little visibility for 8% being reliable anytime soon–you probably read that pensions cannot reduce their growth assumptions because that would increase the extent to which they are underfunded. As far as bonds yielding 2.5%, yields have been low for a while now even if not this low.
Whether you believe in the new normal, as they coin it, or not it is not that new actually. Crappy results for US stocks is certainly not new yet, repeat stats coming, Brazil managed to go up 300% in the oughts, many others went up more than 100% and some of the “laggards” outperformed the US by 50-75% during that decade. The world in those countries went on without us. Additionally there were plenty of US stocks that are far from obscure that did just fine as well. Deere (DE), a name I’ve never owned, was up 169% in the decade, Conoco Phillips (COP) was up 123% and obviously Apple was up a bazillion percent.
If the malaise continues for several more years, like another seven, there will be plenty of countries, stocks and themes that do just fine. The solution, same as yesterday, requires more work. A big focus of this site and the way we manage is that over a period of years finding the right countries and themes can add value versus thinking in terms of months where anything goes.
As far as standard of living, this site has been far from alone in pointing out that retirement as it has been thought of before has changed for most people. Less leisure however can hopefully mean a greater sense of purpose for most people.
Short post, tricky medical call with the Fire Department last night that jacked up my normal routine.