PIMCO bond manager Bill Gross is fighting for the 1%.
Not necessarily the wealthiest segment of U.S. investors (though they are doubtlessly overrepresented among PIMCO shareholders), but for that extra 100 basis points of alpha, which he argues are more elusive than ever in a new era in which "capital gains will be harder to come by."
The world economy has entered a new epoch, the fund manager declares in his August investment outlook, for a number of reasons, foremost among them that declining interest rates have been the most important driver of investment returns.
Because the Fed can no longer lower rates, and indeed is looking to very gradually raise them, further economic advances will depend on organic growth, which has become much harder to achieve than in the past.
Gross, a veteran of the Vietnam War, recounts in his outlook a chance encounter with a Vietnamese cab driver, whom he paid $20 for an $8 fare to appease his feelings of war guilt.
Extending the analogy of U.S. involvement in Indochina, Gross says consumers today are experiencing their own economic "Vietnam" — i.e., disaster — which accounts for structurally deficient economic growth resulting from low demand and a surfeit of supply.
That is because consumers are aging, overly indebted, outdated and "outjobbed by technology" and "overwhelmed by corporations with the power to contain wages."
And stunted as U.S. growth now is — "2% real growth since the Great Recession is nothing to brag about," he writes — that's about as good as it gets in today's world.
South America, he says, is in "virtual recession," Europe is treading water but with unemployment averaging around 20% in peripheral countries, Russia is in economic retreat and Japan and China are sustained only by credit, i.e. "growth due to paper, not productivity."