Bill Gross: Expect low capital gains going forward

[God or Mammon?]

http://www.pimco.com/EN/Insights/Pages/Goodnight-Vietnam.aspx

[matchewed]

So another expect X prediction because I guess X prediction.

[hodedofome]

Gross hasn't been very accurate on his predictions lately. Anything can happen though.

[milesdividendmd]

Gross hasn't been very accurate on his predictions lately. Anything can happen though.

+1

and the 4% GDP growth last quarter as reported today, seems to be the icing on that cake.

[ThermionicScott]

Bill Gross, Jim Cramer, and other would-be soothsayers are good for entertainment, not much else.

[God or Mammon?]

Gross hasn't been very accurate on his predictions lately. Anything can happen though.

+1

and the 4% GDP growth last quarter as reported today, seems to be the icing on that cake.

interesting that roughly 1% annualized GDP growth (4% in 2q after -2.1% in 1q) is now considered to be bullish and good news but who am I to argue with the masses

[milesdividendmd]

More like roughly 2 %, but who's counting?

[God or Mammon?]

More like roughly 2 %, but who's counting?

no, it's 1%

the numbers are quarterly results, annualized

ballpark:
-2.1%/4 + 4.0%/4 = 0.5% for the 1st 6m of the year, which annualizes to roughly 1%

maybe not so rosy after all?

[econberkeley]

Most of the earnings gains are coming from stock buybacks and lower effective tax rates because of tax avoidance. These are temporary trends. Once the pile of cash sitting in the balance sheets goes back to the normal levels, stock buybacks should slow down. Also, tax rates can not go down forever. Also, labor cost growth rate will more likely to go up from depressed levels. Combination of all these trends should slow down the eps growth rate and stock price increases.

[God or Mammon?]

Most of the earnings gains are coming from stock buybacks and lower effective tax rates because of tax avoidance. These are temporary trends. Once the pile of cash sitting in the balance sheets goes back to the normal levels, stock buybacks should slow down. Also, tax rates can not go down forever. Also, labor cost growth rate will more likely to go up from depressed levels. Combination of all these trends should slow down the eps growth rate and stock price increases.

yes and the normalization of interest rates, which were the biggest driver of all asset prices for the last 30+years, will not help either

[milesdividendmd]

Most of the earnings gains are coming from stock buybacks and lower effective tax rates because of tax avoidance. These are temporary trends. Once the pile of cash sitting in the balance sheets goes back to the normal levels, stock buybacks should slow down. Also, tax rates can not go down forever. Also, labor cost growth rate will more likely to go up from depressed levels. Combination of all these trends should slow down the eps growth rate and stock price increases.

 The question is your degree of confidence in your own analysis.

Simply looking at the Cape index tells us that the long-term returns for the stock market right now should be well below historical averages.

This sort of analysis is not particularly actionable though is it?

Are you shorting the stock market?

[God or Mammon?]

Most of the earnings gains are coming from stock buybacks and lower effective tax rates because of tax avoidance. These are temporary trends. Once the pile of cash sitting in the balance sheets goes back to the normal levels, stock buybacks should slow down. Also, tax rates can not go down forever. Also, labor cost growth rate will more likely to go up from depressed levels. Combination of all these trends should slow down the eps growth rate and stock price increases.

 The question is your degree of confidence in your own analysis.

Simply looking at the Cape index tells us that the long-term returns for the stock market right now should be well below historical averages.

This sort of analysis is not particularly actionable though is it?

Are you shorting the stock market?

There are lots of things one could do to take action

- rebalance
- sell calls on equity positions (incl index etfs)
- hold off on adding to equity positions with fresh funds
- sell (gasp!) in a tax deferred account or even taxable one if losses can be harvested, with proceeds moved to other investments or to pay down debt (guaranteed return)

Most importantly, prepare for volatility and low returns going forward which might make you more likely to actually buy a dip when it eventually comes

[milesdividendmd]

The question is not whether or not there are things one could do if one knew what the future held.  The question is how firmly do the prognosticator's believe in their own analysis.  Is it all noise or are they putting their money where their mouth is?

And even if they are confident in their own analysis, and they're investing in their own convictions, is their confidence warranted or misplaced?  (Odds suggest the latter in about 80% of active investors long term.)

I use a very sophisticated market timing strategy which I'll share with the group.  (Please don't post it elsewhere, it's proprietary.)

1.  Buy a diversified portfolio of low cost index funds.
2.  Rebalance once a year.
3.  Ignore the noise.

But then, I was never very good at prediction.

[God or Mammon?]

The question is not whether or not there are things one could do if one knew what the future held.  The question is how firmly do the prognosticator's believe in their own analysis.  Is it all noise or are they putting their money where their mouth is?

And even if they are confident in their own analysis, and they're investing in their own convictions, is their confidence warranted or misplaced?  (Odds suggest the latter in about 80% of active investors long term.)

I use a very sophisticated market timing strategy which I'll share with the group.  (Please don't post it elsewhere, it's proprietary.)

1.  Buy a diversified portfolio of low cost index funds.
2.  Rebalance once a year.
3.  Ignore the noise.

But then, I was never very good at prediction.

nothing wrong with your strategy, Gross just says to expect low capital gains from following it

[milesdividendmd]

The question is not whether or not there are things one could do if one knew what the future held.  The question is how firmly do the prognosticator's believe in their own analysis.  Is it all noise or are they putting their money where their mouth is?

And even if they are confident in their own analysis, and they're investing in their own convictions, is their confidence warranted or misplaced?  (Odds suggest the latter in about 80% of active investors long term.)

I use a very sophisticated market timing strategy which I'll share with the group.  (Please don't post it elsewhere, it's proprietary.)

1.  Buy a diversified portfolio of low cost index funds.
2.  Rebalance once a year.
3.  Ignore the noise.

But then, I was never very good at prediction.

nothing wrong with your strategy, Gross just says to expect low capital gains from following it

Rule #3 in my patented strategy precludes me from worrying about what Gross says.

[Mississippi Mudstache]

More like roughly 2 %, but who's counting?

no, it's 1%

the numbers are quarterly results, annualized

ballpark:
-2.1%/4 + 4.0%/4 = 0.5% for the 1st 6m of the year, which annualizes to roughly 1%

maybe not so rosy after all?

Might want to double-check your math. You converted everything to quarterly numbers, so that works out to about 0.5% quarterly for the first half of the year, which works out to 2% annually.

[God or Mammon?]

More like roughly 2 %, but who's counting?

no, it's 1%

the numbers are quarterly results, annualized

ballpark:
-2.1%/4 + 4.0%/4 = 0.5% for the 1st 6m of the year, which annualizes to roughly 1%

maybe not so rosy after all?

Might want to double-check your math. You converted everything to quarterly numbers, so that works out to about 0.5% quarterly for the first half of the year, which works out to 2% annually.

no

double the numbers for the entire year and what do you get?  4% for 4 quarters annualized or 1% per annum

[RapmasterD]

The question is not whether or not there are things one could do if one knew what the future held.  The question is how firmly do the prognosticator's believe in their own analysis.  Is it all noise or are they putting their money where their mouth is?

And even if they are confident in their own analysis, and they're investing in their own convictions, is their confidence warranted or misplaced?  (Odds suggest the latter in about 80% of active investors long term.)

I use a very sophisticated market timing strategy which I'll share with the group.  (Please don't post it elsewhere, it's proprietary.)

1.  Buy a diversified portfolio of low cost index funds.
2.  Rebalance once a year.
3.  Ignore the noise.

But then, I was never very good at prediction.

nothing wrong with your strategy, Gross just says to expect low capital gains from following it

Rule #3 in my patented strategy precludes me from worrying about what Gross says.

+1 -- with the exception that there are "market probability strategies" out there that one can follow, but they go purely on price measures and not on "gut" or prognostication. And they'll only work to the extent they're blindly followed. BTW, any of those measures I look at indicate that as of today, you stay in and keep investing.

[TheSimpleLife]

The question is not whether or not there are things one could do if one knew what the future held.  The question is how firmly do the prognosticator's believe in their own analysis.  Is it all noise or are they putting their money where their mouth is?

And even if they are confident in their own analysis, and they're investing in their own convictions, is their confidence warranted or misplaced?  (Odds suggest the latter in about 80% of active investors long term.)

I use a very sophisticated market timing strategy which I'll share with the group.  (Please don't post it elsewhere, it's proprietary.)

1.  Buy a diversified portfolio of low cost index funds.
2.  Rebalance once a year.
3.  Ignore the noise.

But then, I was never very good at prediction.

nothing wrong with your strategy, Gross just says to expect low capital gains from following it

Good point, because Gross clearly knows what the market will return next year, next decade, and next century.  Even the great Bogle had been forecasting lower returns after the huge downturn of 08 and he couldn't have been more wrong if you look at the last few years only.

When the experts are always/usually wrong in their predictions, I become an even larger advocate of index funds that capture whole market returns for the cheapest fees possible.  Everything else is just noise.

[FireYourJob]

What's interesting is to this very day, TE stock market has returned about 5% annually for the last 15 years. That includes 2 crashes.

The Obama administration over 5.5 years has hardly reversed that trend compared to TE peak of the Bush administration. We don't have a particularly business friendly environment right now and much of stock gains has been driven by stock repurchases. Maybe it can go on orever like this, but in general, this is now how Amwrica became the greatest country on the planet.