Wednesday, August 1, 2012

One of the GREAT LIES, the stock market return

One of the great lies is how much the "stock market" returns as an investment.   People use an index to calculate this.  the MAIN problem with this approach is that the indices are not a static thing.    They kick out the laggards and bring in the sweethearts, they add and take away ticker symbols on a regular basis.

Thus creating one of the great lies.   Therefore it is funny that Bill Gross of the "smart Bond guy" club completely misses this point of rebalancing.

 Also funny (not really) is how old so many people have become in the handful of years since the financial debacle.   Look around you.    This crisis has had some major impacts on people whether they admit it or not.    Lots of stress, lots of disease.    Check Bill Gross below.   


Bill Gross: We’re Witnessing the Death of Equities

Bloomberg News
Bill Gross
The bond king says stocks are dead.
Bill Gross, Pimco’s co-founder and co-chief investment officer, says stock investors should think again about the age-old “buy-and-hold” investing mantra. He says consistent, annual returns are a thing of the past.
“The cult of equity is dying,” Bill Gross wrote in his August Investment Outlook. “Like a once bright green aspen turning to subtle shades of yellow then red in the Colorado fall, investors’ impressions of ‘stocks for the long run’ or any run have mellowed as well.”
Gross points out stocks have averaged a 6.6% annual gain on an inflation-adjusted basis since 1912. But he labels that rate of return as an “historical freak” that isn’t likely to be duplicated anytime soon, due to slowing economic growth around the globe. From Gross:
“The 6.6% real return belied a commonsensical flaw much like that of a chain letter or yes — a Ponzi scheme. If wealth or real GDP was only being created at an annual rate of 3.5% over the same period of time, then somehow stockholders must be skimming 3% off the top each and every year. If an economy’s GDP could only provide 3.5% more goods and services per year, then how could one segment (stockholders) so consistently profit at the expense of the others (lenders, laborers and government)?”
Gross wonders how stocks can keep appreciating at a 6.6% annual rate in this “new normal” economy, in which GDP growth remains stubbornly low.

Bill and Ben from 2007


  1. In other news, San Bernardino, CA just filed bankruptcy prot & insider selling just hit a fresh all-time high.

    The ponzi is starting to break...

  2.  My indicator charts don't indicate an imminent breakdown, but for sure Humpty Dumpty is cracking more and more, Europe, China, and the fine Economic hitmen of the US will keep it together the longest.

    The Keynesian experiment is reaching an end, prepare accordingly.

  3. no equity stake should be worth more than 10 times annual earnings, yet we are consistently told that stocks with double digit PEs are somehow undervalued.

    there's too many bulls in the market
    ... and too much bulls in the media

  4. San Bernardino Files Chapter 9 Bankruptcy Petition; Pension and Medical Liabilities Impossible to Meet; Major Wave of Municipal Bankruptcies Has BegunRead more at

  5. Is the World Reaching Its 'Keynesian Endpoint'? 

  6.  David, what time zone are you in?


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