Then he started using bronze studs. His favorite market sector: gas pipelines, whose yield he estimates between 9% and 12% for investment-grade stocks with certain tax advantages. That’s also why he suggests that investors take a look Magellan Midstream Partners (MMP), Midstream BP Partners (BPMP) and Enterprise product partners (EPD).
Growth stocks, especially the biggest IPOs of 2020, including Snowflake, Airbnb and Doordash, will find it difficult to live up to what Gross calls “Robinhoods day-trading,” he added. The same goes for SPACs or special acquisition companies and the “2020 Teslas”.
“This market is driven – yes – by intense speculation, but also by corporate profits stimulated by the central bank, which when discounted to present value close to nominal zero and, in many cases, negative real interest rates, produce record stock prices” Gross said.
He attributes his potential downturn to the Federal Reserve’s commitment to keeping interest rates close to zero for years.
“Much of the market’s appreciation over the past two years, especially for growth stocks, was due to lower real interest rates,” said Gross. A recovery that will only continue if real yields remain “substantially negative”, he continued.
On a broader note, the investment legend warned that the coronavirus’ striking impact on the economy – along with a stock market spurred by Fed aid and fiscal stimulus – could begin to mirror the stock markets of Nordic and European countries. It is a cause for concern for Gross, who notes that the markets in these two countries are traded at a lower price / earnings ratio than some of the newest IPOs and stocks like Microsoft currently trading on Wall Street.
“How many fiscal packages can the stock market support before realizing that GDP is now opioid-like, dependent on more and more Washington dollars that turn our supply-side Republican capitalist giant into a – gasp! – ‘universal income – as’ sluggo similar to Europe? To avoid this, it seems to me, it is necessary for unemployment to return to pre-coveted levels. Fed President Jerome Powell said this – but we are very, very far from that, “said Gross.
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