PIMCO bond guru Bill Gross is standing by his comments that the “cult of equity is dying”, saying that near-zero interest rates are stunting lending and growth, and leading to lower returns for both stocks and bonds.

“Last month’s “dying cult of equity” Investment Outlook elicited a lot of excitement, but somehow failed to impress readers with its main point: Returns from both stocks and bonds will be stunted,” Gross writes in his September Investment Outlook (his emphasis added). “How could one argue otherwise on the bond side with investment grade bonds yielding only 1.75%? How could one argue otherwise for stocks under the assumption that bond and stock returns were at least in part mathematically conjoined at the hip? How could one argue otherwise when it is obvious that boomers and X’ers, Y’s and Z’ers are likely to be disenchanted for their own good reasons for years? How could one argue otherwise when it is apparent that stock market trading has been taken over by machines — that HAL rules the stock exchange roost and does a bad job of it at that?”

Gross says that the current lack of lending from big banks isn’t just due to consumers being constrained. It’s also due to the fact that low interest rates make loans less profitable for banks.

So, what to do? “If I were an individual investor, I would do this: Balance your asset mix according to your age. Own more stocks if you are young, but more bonds if you are in your 60s, like myself,” Gross says. “If you choose an investment advisor, a mutual fund, or an ETF, make sure that your fees are minimized. After all, if overall returns average 3-4% annually how can you possibly afford to give 100 basis points of it back? You cannot. And be careful. The age of credit expansion which led to double-digit portfolio returns is over. The age of inflation is upon us, which typically provides a headwind, not a tailwind, to securities price — both stocks and bonds.” (His emphasis added.)