PIMCO chief Bill Gross continues to get buffetted from all sides following a note he posted about how U.S. equity returns have been unsustainably high because they've exceeded GDP growth.

Gross said this would be impossible to sustain over time, and likened it to a Ponzi scheme.

Well, everyone is shredding him over it.

Jeremy Siegel was particularly hard on Gross for getting it wrong.

Brad Delong slammed him.

Henry Blodget demanded a correction from Bill Gross.

Ben Inker at money management firm GMO put out a letter on how this was wrong (without mentioning Bill Gross by name).
And today, Morgan Stanley's Gerard Minack has put out another note on the same topic.

And:

Minack gives another factor that explains why GDP growth and equity returns are uncorrelated.

See, while it is true that GDP growth should associate with strong earnings growth generally for companies in those economies, it's not true that strong earnings growth necessarily associates with strong Earnings Per Share growth.

In other words, a company can be growing profits like crazy, but investors may not capture that upside if share count also expands. And that happens all the time, especially in "growthy" emerging markets, where companies raise equity capital constantly to keep pace with heady growth.

David Fuller's view I do not know of anyone who has made this latter point more frequently than Peter Bennett, whose very occasional reports have graced Fullermoney for many years. Supply obviously matters and I cannot think of a more emphatic example than China in recent years, where the sale of government held and previously unlisted shares produced a lengthy bear market despite an enviable GDP growth rate.

Veteran subscribers will also recall periods of profitless prosperity from earlier decades when some of Japan's leading manufacturing companies and Korean chaebols flooded the global market with goods sold near or even beneath production costs, in hopes of gaining market share and killing off competition. Sometimes it worked and sometimes it did not, but shareholders usually suffered.

However, there are also plenty of exceptions. Think of ASEAN, represented here by Indonesia and The Philippines. Clearly, it is dangerous to generalise about economic growth and share performance from either a primarily bull or bear perspective.

Additionally, many investors have missed out on the terrific performances in recent years achieved by the Autonomies (sector-leading multinational companies, often but not exclusively leveraged to the worldwide increase in people with disposable income). Those who missed this favourite Fullermoney theme were worried about GDP growth, and with good reason. However, the successful Autonomies found plenty of demand around the globe for their high-profile brands. Many of them were also conducting share buybacks and increasing dividends. For examples, consider Coca-Cola, Yum! Brands and Apple.

There are a number of factors for serious investors to consider when looking for market performance, and there is also a time-saving approach that is underutilised.

This item continues in the Subscriber's Area.

1. Monetary policy - When accommodative this is a tailwind for investors but a headwind when restrictive. The direction of monetary policy is a hugely important influence on share performance because central banks will either be attempting to stimulate economic growth by lowering interest rates and pumping in money, or trying to rein in inflationary pressures by raising rates and draining liquidity.

2. Supply - If this is increasing due to a flurry of secondary offerings it will weigh on stock market performance generally. However, share buyback programmes will often support individual equities.

3. GDP growth - If declining, particularly on a global basis, share performance can wane due to concern over earnings. However, leading Autonomies can outperform if monetary policy is accommodative and sectors of the global economy are growing, as is usually the case.

4. Earnings per share - This is obviously crucial and investors will extrapolate the trend of earnings. Therefore we should be wary when earnings growth slows.

5. Dividends - When financed by earnings cash flow these will cushion downside risk for high-yielding shares. Investor interest in Dividend Aristocrats will increase in environments where reasonably safe yields are scarce.

6. Market psychology - It is vitally important to understand this. Markets are manic / depressive, with the pendulum of sentiment swinging between fear and greed.

How do we stay on top of all this? With difficulty because there are thousands of potentially interesting shares for global investors to monitor, and you also have a life aside from your clients and portfolio. Also, over at least the short term we are only as objective as our last forecast or investment decision. We can pool efforts, converse and read, and that additional mental noise will help or hinder in proportion to the calibre or occasionally luck of the sources.

Above all else, successful investors need to be able to think for themselves, and remain objective. This leads me onto my last point.

7. Price charts - These are the most practical and useful financial tool that you will ever have. Try not to approach them with a head full of technical theory or waste time with a plethora of pretty indicators, unless you are trying to impress someone. Instead, just keep an eye on them in the manner of a technical naturalist. They will show you where the market is going, although you will not always like the message. Use a top down approach, looking for leading markets and then relative strength among sectors and then individually shares. This will help you to single out the companies which may merit further investigation. (See also yesterday's lead item in which I discussed price chart reading.) I do not know of anyone who has made this latter point more frequently than Peter Bennett, whose very occasional reports have graced Fullermoney for many years. Supply obviously matters and I cannot think of a more emphatic example than China in recent years, where the sale of government held and previously unlisted shares produced a lengthy bear market despite an enviable GDP growth rate.

Veteran subscribers will also recall periods of profitless prosperity from earlier decades when some of Japan's leading manufacturing companies and Korean chaebols flooded the global market with goods sold near or even beneath production costs, in hopes of gaining market share and killing off competition. Sometimes it worked and sometimes it did not, but shareholders usually suffered.

However, there are also plenty of exceptions. Think of ASEAN, represented here by Indonesia and The Philippines. Clearly, it is dangerous to generalise about economic growth and share performance from either a primarily bull or bear perspective.

Additionally, many investors have missed out on the terrific performances in recent years achieved by the Autonomies (sector-leading multinational companies, often but not exclusively leveraged to the worldwide increase in people with disposable income). Those who missed this favourite Fullermoney theme were worried about GDP growth, and with good reason. However, the successful Autonomies found plenty of demand around the globe for their high-profile brands. Many of them were also conducting share buybacks and increasing dividends. For examples, consider Coca-Cola, Yum! Brands and Apple.

There are a number of factors for serious investors to consider when looking for market performance, and there is also a time-saving approach that is underutilised.

This item continues in the Subscriber's Area.

1. Monetary policy - When accommodative this is a tailwind for investors but a headwind when restrictive. The direction of monetary policy is a hugely important influence on share performance because central banks will either be attempting to stimulate economic growth by lowering interest rates and pumping in money, or trying to rein in inflationary pressures by raising rates and draining liquidity.

2. Supply - If this is increasing due to a flurry of secondary offerings it will weigh on stock market performance generally. However, share buyback programmes will often support individual equities.

3. GDP growth - If declining, particularly on a global basis, share performance can wane due to concern over earnings. However, leading Autonomies can outperform if monetary policy is accommodative and sectors of the global economy are growing, as is usually the case.

4. Earnings per share - This is obviously crucial and investors will extrapolate the trend of earnings. Therefore we should be wary when earnings growth slows.

5. Dividends - When financed by earnings cash flow these will cushion downside risk for high-yielding shares. Investor interest in Dividend Aristocrats will increase in environments where reasonably safe yields are scarce.

6. Market psychology - It is vitally important to understand this. Markets are manic / depressive, with the pendulum of sentiment swinging between fear and greed.

How do we stay on top of all this? With difficulty because there are thousands of potentially interesting shares for global investors to monitor, and you also have a life aside from your clients and portfolio. Also, over at least the short term we are only as objective as our last forecast or investment decision. We can pool efforts, converse and read, and that additional mental noise will help or hinder in proportion to the calibre or occasionally luck of the sources.

Above all else, successful investors need to be able to think for themselves, and remain objective. This leads me onto my last point.

7. Price charts - These are the most practical and useful financial tool that you will ever have. Try not to approach them with a head full of technical theory or waste time with a plethora of pretty indicators, unless you are trying to impress someone. Instead, just keep an eye on them in the manner of a technical naturalist. They will show you where the market is going, although you will not always like the message. Use a top down approach, looking for leading markets and then relative strength among sectors and then individually shares. This will help you to single out the companies which may merit further investigation. (See also yesterday's lead item in which I discussed price chart reading.)