Bill Gross: Investor returns to shrink in 'repressive environment' The days of easy double-digit gains in stocks and other securities are coming to an end, says PIMCO's Bill Gross, the best-known bond manager in the world - but bonds are still "critical components of an investment portfolio." Consider the classic 1963 Steve McQueen film "The Great Escape," in which American POWs are trapped in a German prison camp during World War II. There, "the living conditions were OK ... but certainly not what they were used to on the other side of the lines," according to Gross. And that, to him, represents the situation investors are in now: "locked up in a financially repressive environment that reduces future returns for all financial assets." In an April investment letter on his firm's website, Gross - who manages the $252 billion PIMCO Total Return Fund - explains that global inflation is coming amid rampant credit expansion. Low-interest rates may not be around much longer to serve as a crutch. The market has been spooked by "financial wizardry" and "tired policy maneuvers that bring future wealth forward," but transitioning to real growth will be difficult, he said. Gross suggested that investors back off from derivatives and borrowed money as a core strategy. Treasuries, he wrote, will earn an inflation-adjusted return of -2% to -3%. But bonds - even when they're returning 4% annually instead of 10% -- are an investor's friend because of their stability, Gross wrote. He also now favors shorter duration and inflation-protected bonds. Safe, dividend-paying stocks with presence in the developing world are preferable to growth stocks like Apple that rise on future projections, Gross believes. Inflation-sensitive commodities in tight supply, as well as other real assets such as land, buildings and machines, are also a good bet, he wrote. PIMCO stands for Pacific Investment Management Co. and is based in Newport Beach. The rise of the bond barons Bill Gross apologizes to Pimco fund owners for 'bad year' Gundlach thought he could succeed Gross at Pimco, consultant testifies Follow Tiffany Hsu on Twitter and Google+