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December 30, 2003 at 07:00 PM
For a star gazer, Robert Arnott has decidedly humdrum advice for investors.
The amateur astronomer and chairman of First Quadrant LP, a money management firm in Pasadena, Calif., thinks the glut of economic stimulus from the Federal Reserve’s interest rate cuts and President Bush’s tax cuts have given equities a short-term boost. But he worries that those moves might also spur inflation.
So he is forecasting zero returns from stocks, after inflation, over the next few years, and betting instead on bonds. Arnott, who also oversees the $825 million PIMCO Funds: All Asset Fund/Adm (PAALX), has the majority of the fund’s assets stashed in government Treasury Inflation Protected Securities. TIPS are Treasury bonds whose prices are tied to the consumer price index, thus offering fixed-income investors a high quality bond that won’t lag behind inflation if the cost of goods and services skyrockets.
Why does Arnott see little reason to own stocks, with the average stock mutual fund up nearly 30% since Jan. 1? His answers:
