PIMCO’s Gross Slams Draghi, Says Jeremy Siegel Belongs in ‘Ivory Tower’

To rectify the situation in part, we have never been a believer in total that both combinations, monetary and fiscal, could solve the problems because there are negative aspects of any of these solutions going forward. Zero-based money produces very negative aspects in terms of business models, money-market funds and bank loans etc.

This isn't just a one-way street in terms of printing money and things will get better again. We have been skeptical but at least at the moment in terms of kicking the can, and placating the waters, we've been hopeful that something would be done without the expectation that it's a permanent solution."

On how patient the market will really be:

"I think it's perhaps passed the point of patience. I speak to the scarlet 7% on the market's chest, so to speak, and that refers to interest rates in Spain and Italy, toward which and above which, their countries have gone in terms of their 10-year securities. Once you get to that level, once ratings services begin to downgrade your sovereign instruments, once the market fails to trust what's going forward in terms of returning yields to 3% and 4% that might promote a semblance of economic growth going forward, then the story is pretty much over. Absent something significant over the next week in terms of a follow-through on the part of the ECB that the market in part, and certainly PIMCO, will never trust Italian bonds and will never trust Spanish bonds because the yields are too high and the technical deterioration is too significant and the ratings services are on their heels in terms of downgrading."

On Jeremy Siegel saying earlier today that it's usually the start of a huge bull market when the media pronounces equities dead:

"Professor Siegel is getting a little nasty here. Yesterday I was praiseworthy but it seems like gloves are off. When I said that the cult of equity was dying, what I meant was that those investors and those liabilities structures such as pension funds and insurance companies that have depended on a 6.5% constant real return from stocks such as we've have had over the past century are bound to be disappointed. In individual terms, those that are looking for double-digit returns of stocks to pay for education and retirement are bound to be disappointed, and that's why the cult of equity is dead.

It sounds like Prof. Siegel hasn't even read my piece, let alone understood it. I said as well the cult of bonds is dead. When bonds yield 1.75% for investment-grade bonds, then it's difficult to turn that into a 5-10% return going forward.

What we have really seen over the past several years, in terms of the appreciation of markets and the decline of interest rates based on what the Fed has been doing, is a result which has eliminated the possibility of investors in bonds and stocks to earn an adequate return relative to their expected liabilities. If he wants to argue against that, and talk about Dow 5000 and bear and bull markets, then he's welcome to, but he's pushing at windmills in my opinion, and he belongs back in his ivory tower. There, backatcha!" 

On Siegel's retort that "the real U.S. economy is growing at 3.5% per year, so how could stocks give 6.5% per year?"

"Prof. Siegel's ivory tower again lacks common sense. If wealth is created at 3% a year based on GDP, and that wealth is divided as it always is by government, by labor, and by business in the form of corporate profits, then it's hard to see how one element like corporations and stocks can continue to earn 3% more than real GDP going forward. That's only common sense."