Bond-fund manager Bill Gross on Thursday said that investors should disabuse themselves of the notion that interest rates are going to be lifted any time soon, even though assets such as gold have streaked to new records.
Raise interest rates with 15 million jobless and 25 million part-time working Americans? All because gold is above $1,100? You must be joking or smoking - something, Gross, chief investment officer of Pacific Investment Management Co, said in his latest report to clients on the firm's website.
The rise in gold and other commodities has fueled concern that inflation will come to bear in coming months due to low interest rates and the declining dollar. But Gross says the Fed's efforts to reflate the U.S. economy through its zero-percent interest rate policy is far from complete.
We will need another 12 months of 4 percent to 5 percent nominal GDP growth before Bernanke and company dare lift their heads out of the 0 percent foxhole - mini-bubbles or not, Gross wrote.
Because the private sector is still concentrated on debt repayment and bank lending is contracting, the likelihood of higher rates is low. The decline in rates has pushed investors to move into riskier assets, and that has, in part, refueled the stock market. The S&P 500 has gained about 65 percent since hitting a 12-year low on March 9.
Currently, he says utilities stocks provide opportunity for investors in a low growth environment, due to their high dividend yield and steady earnings potential.
Investors have been caught between accepting low returns with risk-free assets such as short-term Treasury bonds, or by taking risk in assets such as stocks. This has paid handsomely since March, but Gross says expected low growth in coming years will hurt a number of sectors, including banks, auto companies and other entities.
He notes that utility shares yield more than their less risky debt and offer dividend yields of about 5 percent to 6 percent, making them attractive in coming years.
(Reporting by David Gaffen; Editing by Theodore d'Afflisio)