Photo: AP Images
There’s been a Jeremy Siegel – Bill Gross spat brewing for the last few days. It all started with Gross saying that the Siegel’s assumptions about stocks were uneconomic.And it all came to a head on Bloomberg TV this morning when Gross said Siegel lives in an Ivory Tower that he lacks common sense.
So, Bloomberg TV got Jack Bogle founder of The Vanguard Group to weigh in on the debate and he clearly sided with Gross.
Bogle especially agreed with Gross’ point that with GDP at about 3 per cent investors shouldn’t expect big returns on stocks:
“I think there’s some merit in Bill’s position that stocks are going to give returns that are much lower than historical levels and bonds definitely will give much lower returns. I happen to think he’s a little bit low. For example he says in a balanced portfolio nominal returns might be bonds and stocks half and half roughly and the return on that portfolio might be 3 per cent before deducting inflation and my own work suggests 5 per cent. That’s not any room for debate there.
You know it’s not that one of us is right and one of us is wrong we’re both looking for much lower than historical returns and I think that’s a virtual certainty.
Now whether that means the cult of equities is dead I can’t help but be reminded of the Businessweek cover “the death of equity” right at the best time to buy equities in history. This is not such a time by the way be clear, there’s a lot to worry about today. Bill puts his finger accurately and importantly on one big worry. And that is if the real return is going to be, lets use my 5 per cent, how are these pension funds going to get that 8 per cent, they’re assuming. And the answer is they’re not going to get it. We’re talk about a bubble the pension funds are dreaming of a bubble that isn’t going to recover. That’s a national problem it’s state and local governments, its corporations and there’s no defence of that 8 per cent and Bill is right there.”
Bogle went on to say that yields on today’s government bonds have a 91 – 92 per cent correlation with the returns you’re going to get over the next 10 years.
He said Siegel’s buy and hold investment principle is never dead and added, “I don’t look for a great decade ahead but I look for a decent one.”