The U.S. is morphing towards a world where regulation trumps capitalism, says PIMCO co-CEO Bill Gross — and that’s the yardstick people need to use in determining if stocks are a good buy.

“The past bull stock market was based in substantial part on a leveraged economy in which everyone borrowed more and more money,” Gross told CNBC.

But the increased regulation and higher corporate taxes on the horizon may well be in effect for the next 10 to 20 years, and these must be included when evaluating stock prices, Gross notes.

“Valuations are very, very, cheap, but the question is, are they cheap by the old world standards or now?” Gross asks.

Bonds are another matter, Gross says.

Gross expects that government bond yields to be much lower than expected and finds corporate bonds much more attractive, citing A-rated companies Caterpillar Tractor and Hewlett Packard.

Treasurys teetered near historic lows as stocks got battered on bad economic news this past week.

"In the near term, the economic news is still challenging," Michael Strauss, chief economist at investment firm Commonfund told CNN.