The Oracle Of Pimco Resorts To Popeye's Friend Wimpy To Pound The Table On Inflation After Dying Cult Of Equities Comment Fails To Hit Home

Thursday, September 06, 2012 07:03
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The Oracle Of Pimco Resorts To Popeye's Friend Wimpy To Pound The Table On Inflation After Dying Cult Of Equities Comment Fails To Hit Home

Tags: active management | bonds | inflation

Bill Gross is at it again. This time, he’s raising the inflation flag. He uses Wimpy the hamburger guy to illustrate what’s wrong with credit (I’ll gladly pay you Tuesday for a hamburger today).

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And although a single hamburger bought on credit seems pretty harmless, Gross says the practice has gotten way out of hand. It’s led to forced de-levering that has been going on since the crisis of 2008.
 
Now, the credit crisis threatens to haunt us in a different way, with inflationary headwinds that stymie both stock and bond prices.
 
Gross’s dying cult of equities argument stirred a lot of banter but failed to drive the point home that both stock and bond prices may be going nowhere.
 
Interestingly, Gross ends up pointing to investor disenchantment brought on by the disparate generational views of Boomers, Gen-Xers, and Echoes/Millennials. He says each generation will be disenchanted for years for its own particular reasons.
 
He also points to bond yields of 1.75%, asking how one could argue against the case for inflation. He advises balancing portfolios based on age with fewer equities and more bonds as one gets older. He also advises keeping an eye on fees. With returns so low, fees have more weight in investment decisions.
 
The advice makes one wonder how investors are supposed to manage the risk of outliving their money and outpacing inflation if they have little to no growth instruments in their portfolios, even as they get older.
 
It’s doubtful that many investors have the cushion that Gross has to be able to load up on low bond returns from age 60 and above. What’s your opinion?

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