Fresh from his legal fight with his neighbor, investment professional Bill Gross has some opinions about the stock market and bulls won’t like it.
The legendary bond fund manager, formerly referred to with admiration on Wall Street as the ‘King of Bond’, has not focused on market fluctuations since he retired from Janus Henderson in 2019 – until recently.
But recent moves in the markets have apparently forced Gross to re-present his monthly market outlook, not to mention the conclusion of his legal dispute with his neighbor, which included his explosion of the “Gilligan’s Island” theme song.
“But away from Gilligan, Skipper and SS Minnow and moving on to more important issues like the ‘Wonder Woman 1984’ analysis (100% green tomatoes – don’t think about watching) and perhaps the Bubblicious stock market,” writes Gross.
“So why are inventories so high and IPOs like DoorDash DASH,
shot 80 percent on its first day of issuance and Airbnb ABNB,
… Robinhood and the momentum rule, ”he concludes.
“This market is driven – yes – by intense speculation, but also by corporate profits driven 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 wrote, referring to rates of around 0% and 0.25% and real yields, yields on securities accounting for inflation, are being traded in subzero territory.
This means that investors earn very little from savings or are really willing to lose money for the sake of keeping inflation-adjusted government bonds.
In this world, investors are being directed to more risky areas of the market, notes Gross.
“My point, however, is that the 200 basis point decline in real 10-year treasury yields since January 2019 was instrumental in the 50% price increase on the S&P 500 over the same period,” wrote Gross, referring to to the 10-year Treasury note yield TMUBMUSD10Y,
which is below 1%, compared to aggregate yield for the S&P 500 SPX index,
in 1.6%, they show FactSet data.
The 76-year-old professional investor points to the Federal Reserve’s asset purchase programs and other stimulus measures that are providing an extraordinary backstop in the financial markets, as well as Washington’s fiscal relief packages, as part of sustaining the boiling of the investor in the face of what he perceives as inflated values.
He also suggests that the market and the economy may get used to government injections.
He writes:
“And 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 Republican capitalist giant on the supply side into a – sigh! – ‘similar to universal income’ sluggo similar to Europe? “
For now, Gross appears to be attributing most of the recent earnings from the Dow Jones Industrial Average DJIA,
the S&P 500 index and growing companies on the Nasdaq Composite Index COMP,
including Tesla TSLA,
at the low and negative interest rates in force.
It is not clear how long the market crash will last in 2021, however, notes Gross.
His January report was released after Gross and his partner, Amy Schwartz, were ordered by Superior Court judge Kimberly Knill not to violate the noise provisions of the Laguna Beach municipal code or to play music on her external speakers and instructed them to stay at least 5 meters away from your seaside neighbor.
The decision came from Gross’s neighbor, Mark Towfiq, alleging a “targeted harassment campaign” after he complained about a large glass statue he said was erected without permission. Gross also played the theme for the Gilligan’s Island sitcom, and another loud song, repeatedly in retaliation for Towfiq’s complaint, shows court documents.