Bill Gross' Latest Investment Outlook: Rational Temperance ~ market folly

Friday, March 1, 2013

Bill Gross' Latest Investment Outlook: Rational Temperance

It's been a while since we've checked in on what the bond king Bill Gross is up to over at PIMCO, so below is his latest investment outlook entitled 'Rational Temperance'.

In it, he touches on how investors are stretching for yield and that "corporate credit and high yield bonds are somewhat exuberantly and irrationally priced.  Spreads are tight, corporate profit margins are at record paeks with room to fall, and the economy is still fragile.  Still that doesn't mean you should vacate your portfolio of them.  It just implies that recent double-digit returns are unlikely to be replicated."

Oaktree Capital's Howard Marks also recently commented on high yield bonds in his latest memo.

Gross then goes on to say that, "the conclusion would be that where high yield prices go, stock markets follow, or vice versa.  Narrow yield spreads in high yield credit markets appear to be accompanied by 'narrow' equity risk premiums in the market for stocks, which is another way of saying that the course of future equity returns may not resemble its recent exuberant past."

Basically, the whole theme of Gross' piece "Rational Temperance" is him saying that investors should lower their return expectations.

Embedded below is Bill Gross' latest PIMCO investment outlook:

You can download a .pdf copy here.

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