Bill Gross, managing director of the world’s largest bond fund, (whose star has become a little tarnished this year) has advice for investors and, sadly, for all of us—get used to it:
If structural solutions are not put in place, a six-pac market observer should look at both stocks and bonds as rather flabby knock-offs of their former selves; no resemblance at all to Jack LaLanne but more to a 55-year-old terminator grown fat and rendered out of shape by years of neglect and perhaps greed for short-term profits as opposed to long-term balance. There are no double-digit investment returns anywhere in sight for owners of financial assets. Bonds, stocks and real estate are in fact overvalued because of near zero percent interest rates and a developed world growth rate closer to 0 than the 3 – 4% historical norms. There is only a New Normal economy at best and a global recession at worst to look forward to in future years. A modern day, Budweiser-drinking Karl Marx might have put it this way: “Laborers of the world, unite – you have only your six-packs to lose.” He might also have added, “Investors/policymakers of the world wake up – you’re killing the proletariat goose that lays your golden eggs.”
As with many commentators recently his message is one of the problems posed by growing income inequality. Unfortunately, also as with many commentators, his ability to diagnose the problem is a lot better than his advice for curing it which seems limited to other managers resolving to pay their employees more and a Buy American program. Clearly, Mr. Gross hasn’t looked at the content of consumer goods lately. It’s darned hard to buy American even if you want to. If you buy a small car, the odds are extremely good that its engine was made in Japan or South Korea. If you buy fresh meat, it’s probably American. If you buy frozen prepackaged meat, chicken, fish, or seafood, it’s probably from Asia, Latin America, or Australia.
Relatively few consumer goods are 100% made in the U. S. A. any more.
With any luck Arnold Schwarzenegger, the Austrian-born former governor, former actor, former body-builder, former 100 lb. weakling, may be a better metaphor for the United States than Mr. Gross realizes. As Mr. Gross observes, he’s showing his age. However, over the years he’s shown a remarkable ability to re-invent himself. That’s what we’re going to need to do.