In this article I will be summarizing the most recent letters to investors of three investing “gurus.” All three of these people have outstanding investment track records and they are excellent writers who frequently write about the state of investment opportunities that exist in the world today.

Bill Gross is a bond investor mostly. He is often called the “king of bonds” for his ability to consistently outperform the major bond indexes. Without going into too much more detail about who he is, here is what he has to say…

In his most recent letter he wrote about his trip to Washington DC and his proposal that he laid out to help the housing market both now and in the future. His proposal is pretty much this: Right now Fannie Mea and Freddie Mac back (read own) the vast majority of all U.S. mortgages. In fact 95% of all mortgages in the past 12 months have originated at one of these two institutions!

Bill’s proposal seems simple enough. He says that from now on Fannie and Freddie should only back these mortgages if there his been an adequate down payment, proper documentation for the loan (i.e. make sure people have a job, good credit, ext.), and 1/2% to 3/4% added on to the interest rate on the loan, which will be used to create an insurance fund. The idea is to pretty much make sure the loan is made to a real person, who can pay for the loan, and to have a backup plan if they can’t pay for the loan.

At the end of his letter he admits it would be nice not to have the government involved in home mortgages, but going from 95% of mortgages being backed by the government to 0% would cause interest rates to go through the roof.

Overall, I think his letter is a warning to the government and it is this: don’t make the same bad loans that the banks made!

Next Guru (this one will actually talk about investing I promise) Jeremy Grantham. He is a famous investor who has correctly called almost every bubble over the past ten years, from tech stocks in 2000 to housing and banks in 2007 and more.

Here is what he has to say.

He doesn’t think that inflation will be an issue (at least for the foreseeable future). Despite the fact that the government has been printing a bunch of money, demand just isn’t strong enough to cause inflation. And with governments in europe and soon the U.S. making efforts to reduce their debts and deficients he see’s inflation as being even more unlikely and the odds of a small recession being quite high. All that being said he believes the best place to invest right now is U.S. high quality stocks (for the reasons mentioned above and because they are cheep). These are large, low debt companies, that earn money consistently and are affected little by the economy. Examples would be MacDonalds, Wal-Mart, Johnson and Johnson, and more.

His second favorite place to invest is the stock markets of emerging markets, because these economies will continue to grow faster than the larger economies and they are also fairly cheep.

He says that after inflation you can expect these two asset classes to earn about 6.5-7% over the next 7 years. Which is slightly higher than the long term average of U.S. stocks after inflation of 6.5%.

Last Guru on the list: Howard Mark of Oaktree Capital. Manages a 76 billion dollar fund, and has been described as a more philosophical version of Warren Buffet. In fact he will often quote Buffet in his own writings. He made a lot of money by going “all in” in distressed debt and businesses near the bottom of the 2008 financial crises.

Heres what he had to say in his latest letter to investors (it was written lest than 2 weeks ago):

To make a long story short, his entire 10 page letter can be summed up by the following. Bonds are very expensive, high quality U.S. stocks have the best chance of making the most money over then next several years.

This summary is in agreement with the Jeremy Graham said. I would agree also based on my previous post “How to Value the Stock Market” stocks are about 46% cheeper than bonds today. Are they 46% worse? I can’t say for sure, but I doubt it.