For someone whose focus is managing the world's largest bond fund, Bill Gross is certainly sour on the bond market's future.
Gross, who manages more than $1 trillion of fixed-income investments for Pimco, told nearly 1,700 financial advisers and other investment professionals Wednesday that U.S. government efforts to keep interest rates low has "repressed" the potential gains for investors in bonds and Treasury bills.
"What you're left with as investors _ what Pimco is left with _ is a negative return relative to inflation," Gross said. "Your pocket is being picked. You're being skunked."
Gross, the opening keynote speaker at the Morningstar Inc. annual investor conference, said the Federal Reserve's policies have left investors with little option but to turn to Brazil, Canada, Mexico, and Germany _ countries where interest rates are higher and potential returns are greater.
He acknowledged the increased risk that many investors fear, but said the risk may be worth a return that's better than the current bond market in the United States.
He told the advisers in the audience to steer clients to dividend-paying stocks, such as Procter and Gamble and Johnson & Johnson as another option.
Investors putting money away for college or for retirement, and seeking returns of eight to 10 percent, are not going to find it over the next decade _ possibly even longer.
They can't just park their money in money market funds now yielding near zero interest.
"Investors will say, `It is what it is,' at least I can sleep at night," Gross said. "That's not good enough anymore. You're being financially repressed."
At least the dividend paying companies may offer 3 to 5 percent a year consistently and steadily, he said.
Gross has made it clear he's no fan of the government debt and economic policies intended to artificially keep interest rates low in an effort to stimulate the economy.
He calls it financial repression. Although low interest rates have helped the mortgage market, and boosted corporate profits that in turn have driven stocks higher. He said interest rates pushed lower by government intervention also rob savers and investors, particularly those who seek the safety of government Treasury bills and bonds.
"Financial repression takes money out of the pockets of savers and investors and puts it in the hands of debtors, the U.S. Treasury being one," he said. Companies and households with too much debt become the favored ones," he said.
Although Gross encouraged investors to look abroad, he acknowledged, that no one should have their entire portfolio in developing markets or emerging markets because there's too much risk.
While he believes there will not be a third round of quantitative easing _ the policy in which the Fed buys U.S. Treasurys to keep interest rates low _ he said the government will try to keep rates down for years. He invited the conference organizers to bring him back in 15 years and he said "with 51 percent certainty" we'll find investors have been financially repressed the entire period of time.