Pimco’s Bill Gross pulls no punches in assessing America’s investment alternatives in his freshly minted commentary for May. He’s been wrong before, of course. It wasn’t that long ago that he predicted that the Fed wouldn’t keep raising interest rates. No matter, as the predictions keep coming:
“Higher inflation, higher personal and corporate taxes, and a lower dollar point U.S. and global investors away from U.S. assets and toward more competitive economies less burdened by health and pension liabilities – those personified by higher savings rates and investment as a percentage of GDP,” writes Gross, manager of the world’s biggest bond fund. If such a hint at his thinking doesn’t suffice, he clarifies with, “Need I say more than to sell U.S. assets and buy Asian ones denominated in their local currencies; or if necessary to hire a global asset manager with sufficient flexibility and proper foresight to thrive in an increasing difficult investment environment?”
Bashing the U.S. investment outlook hasn’t exactly been out of favor in recent years, although it’s been a losing proposition when it comes down to dollars and cents. Despite the macroeconomic smoking guns that have been casting dark clouds over America’s prospects, investors the world over have seen fit to ignore the strategic and favor the tactical. And it’s paid off handsomely, particularly in the stock market.
A determined investor who bucked the then-bearish crowd and bought the S&P 500 Spider ETF in early 2003 is now looking like a genius, courtesy of the fund’s 14.11% annualized return for the 36 months through yesterday, according to Morningstar data. That’s well above the S&P 500’s long-term performance, and probably a good deal more than reasonable minds expect going forward.
In any case, the rear view mirror doesn’t reflect quite as favorably on bonds. The Vanguard Total Bond Market Index fund, which tracks the Lehman Aggregate Bond Index, has more or less treaded water over the past 36 months, posting a spare 2.43% annualized return through yesterday–about half the current yield on the 10-year Treasury.