Pimco's Gross: Returns To Slump From Historical Levels

Investment returns will fall from historical averages as the last decade's trend toward increased liquidity and deregulation, which "once pumped asset prices and favored the production of paper, as opposed to things," is reversing, said famed bond-fund manager Bill Gross.

The commentary Tuesday from the Pacific Investment Management Co. managing director comes during ongoing debate over how to boost the U.S. economy as speculation mounts that it could see a double-dip or long period of tepid growth.

Gross, in his monthly missive on the Pimco website, said a "heap of trouble" lies ahead for those expecting more than low investment returns. He argued the investment industry faces a correction because asset prices reached unsustainable heights during the dot-com and housing bubbles.

Gross said moves such as consideration by Ken Griffin, head of hedge-fund firm Citadel, to cut fees and the departure of famed manager Stan Druckenmiller reflect the hedge fund industry's broader woes.

The best path toward renewed prosperity would be "the good old-fashioned route" of investment in production, Gross argued. Nevertheless, he said such measures would take "a long time and an increase in political courage not seen since Ronald Reagan or FDR."

More likely, Gross said, is a program of low interest rates and quantitative easing from the Federal Reserve while Washington runs near-double-digit deficits as a percentage of gross domestic product.

 
   -By Matt Jarzemsky, Dow Jones Newswires; 212-416-2240; [e-mail]