Tuesday, November 13, 2012

"Pimco Sees Stocks Returning 4% to 5.1% as Economy Slows"

Expected future returns, one of our favorite topics.
From Bloomberg:
Pacific Investment Management Co., manager of the world’s largest mutual fund, said returns from U.S. equities will decline from their historic averages over the next decade as the U.S. economy grows at a slower pace.

Equities will return an annualized 4 percent to 5.1 percent over the coming five to 10 years, down from their historical rate of almost 10 percent, Saumil Parikh, a portfolio manager who leads Newport Beach, California-based Pimco’s cyclical forum, said in a November asset allocation report being posted on the firm’s website today.

“If investment in the U.S. economy does not pick up substantially over the next five to 10 years, the unsustainability of large public sector deficits will put tremendous pressure on corporate profits and their ability to keep up with nominal GDP growth,” Parikh said.

Bill Gross, Pimco’s founder and co-chief investment officer, said in his August investment outlook that the cult of equity was dying and returns of 6.6 percent above inflation, known as the Siegel Constant, wouldn’t be seen again. In his September outlook he said stocks would still outperform bonds, even as returns for both would be stunted....MORE 
See also:
"Why Bill Gross is Wrong: Innovation and Long-term Returns on Equity"
June 21
 "Mr. Market's Estimate Of Expected Stock Returns"
August 10
GMO - Reports of the Death of Equities Have Been Greatly Exaggerated
...For example, here's the above writer's boss:
Jeremy Grantham Sees 'ho-hum' returns for next 7 years
Climateer Line of the Day: Jeremy Grantham talks Food Crisis Edition
Sept. 21
Hulbert: "Stocks’ future return: Just 5.6% annualized"
Sept. 27 
John Hussman: Current Market Gains are Destroying Future Expected Returns

Correlations: "Stock Synchronicity and Future Returns" (SPY)
Some Depressing Thoughts on Expected Future Equity Returns