Gross is obviously talking his book but in my interview with him, he made a very interesting point. He suggested that since bonds and preferred stock are senior to common stocks in the liquidation hierarchy of a company, in a slow growth environment, there is no upside to stocks, only downside.
The downside of stocks is that when a company liquidates itself in a bankruptcy, the spoils go to every other stakeholder before the common shareholder. In other words, common shareholders have nothing to look forward to in his view because companies are going to be paying out their meager cash to other categories of investors.
I think he could be right for a while, but eventually stocks will come back as soon as entrepreneurs can come up with world-beating new technology companies.
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book is You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He has no financial interest in the securities mentioned.