Bill Gross of PIMCO has found himself in the hot seat since his August call noting the death of the cult of equities. It is almost a shame that very few readers can spend the 5 minutes to actually look and see what a guy is really saying beyond a catchy headline. What Gross was really warning about is the death of high historic returns, and not just in stocks. Bonds too. If you have perused the September 2012 outlook from him this week, there is a much more important message coming down the pipe over the next month… Bill Gross is on the path to either look for hyperinflation or toward a systemic mess in the United States that is uglier than almost all investors are prepared for.

In the September Investment Outlook that he posts on PIMCO’s website each month, Mr. Gross is echoing his call that real returns after the effect of inflation could be almost zero. He is calling for investors to go for mutual funds and ETFs that have the lowest fees that eat at returns. His Investment Outlook for October is likely to be far worse.

In the August Outlook Gross said, “Unfair though it may be, an investor should continue to expect an attempted inflationary solution in almost all developed economies over the next few years and even decades … The cult of equity may be dying, but the cult of inflation may only have just begun.”

His warning for October is no great news … Gross has telegraphed this week that he will be warning much harder about the woes of the United States as well. His warning is rather clear, even if not specific:

If you are an institution be cognizant as well of the above, but in addition, recognize that higher returns — from both stocks and bonds — usually emanate in countries and economies which exhibit higher growth. And don’t trust any country, including the United States, to forever remain a clean dirty shirt. There’s mud aplenty in our future, which I’ll expound more about in next month’s Investment Outlook.

We have a figure for you and it is one you can count on Bill Gross to be harping on in a month’s time. The U.S. debt is now over $16 trillion. The U.S. GDP was almost $15.1 trillion in 2011, and growth is slowing. One day the politicians will figure out that this is real money now.

JON C. OGG

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