(Bloomberg News) Bill Gross, who runs the world's biggest bond fund at Pacific Investment Management Co., said governments may turn to financial repression and various forms of quantitative easing to inflate asset values as equities fail to match historical returns.

The so-called Siegel Constant, which purports to show a long-term history of history of inflation-adjusted equity real returns of 6.6 percent since 1912, may be a "historical freak" unlikely to be seen again, Gross said in his monthly investment outlook posted on the Newport Beach, California-based company's website today. Presuming a 2 percent return for bonds and 4 percent nominal returns for stocks, a diversified portfolio produces a nominal return of 3 percent and inflation-adjusted returns near zero, he wrote.

Since private pension funds, government budgets and household savings balances often assume a minimum 7 percent to 8 percent minimum annual appreciation, policy makers emulating historical patterns may be tempted to inflate their way "out of the corner," even though inflation doesn't doesn't create true wealth and doesn't fairly distribute pain and benefits across society, Gross wrote.

Equity 'Cult'

"Unfair though it may be, an investor should continue to expect an attempted inflationary solution in all almost all developed economies over the next few years and even decades," Gross wrote. "The cult of equity may be dying, but the cult of inflation may have only just begun."

Gross in June kept the proportion of U.S. government and Treasury debt in his $263.4 billion Total Return Fund unchanged at 35 percent of assets, according to a report July 11 on the company's website. Mortgages were at 52 percent for a second consecutive month. Pimco doesn't comment directly on monthly changes in its portfolio holdings.

In developed nations, Gross has advised investors to favor debt of the U.K., as well as the U.S., as Germany faces risks related to the eventual costs required to end the region's worsening sovereign and banking crisis.

The U.S. Treasury market is considered the cleanest "dirty shirts" for investors, Gross wrote in his previous commentary. "Don't underweight Uncle Sam in a debt crisis. Money seeking a safe haven will find it in America's deep and liquid, almost Aaa rated, bond and equity markets."

Record Lows

Treasuries securities last week sank to record low rates, pushing the yield on the 10-year note to 1.379 percent on July 25 amid concern the European debt crisis was slowing the global economy. The 30-year bond yield touched a record 2.44 percent on July 26.