The legendary bond-fund manager, once affectionately known on the Street as the ‘Bond King’, hasn’t kept a sharp eye on the market since stepping away from Janus Henderson in 2019—until recently.
It appears that the recent fluctuations in stocks have persuaded ol’ Bill to start serving up his monthly market outlooks, not to mention the conclusion of his legal quarrel with his neighbor, which included his blaring of the “Gilligan’s Island” theme song. Carl Icahn’s Annual Two Cents on the Market
“But away from Gilligan, the Skipper and the S.S. Minnow and on to more important matters like ‘Wonder Woman 1984’ reviews (100% green tomatoes — don’t think of watching) and maybe the Bubblicious stock market,” Gross writes. “So why is it that stocks are so high and IPOs like DoorDash [$DASH] soared 80% on its first day of issue and Airbnb [$ABNB]…Robinhood and momentum rule,” he concludes.
“This market is driven—yes—by intense speculation, but also by fiscally pumped, central bank-primed corporate earnings, which when discounted to present value by near zero nominal and in many cases negative real interest rates, produce record stock prices,” Gross noted, referring to rates that sit at around 0% and 0.25% and real yields, bond yields accounting for inflation, are trading in subzero territory.
That means investors are earning very little on savings or are actually willing to lose money for the perceived safety of holding government bonds adjusting for inflation. In that world, investors are being driven to riskier areas of the market, notes Gross.
“My point though is that the 200-basis point decline in real 10 year treasury yields since January 2019, has been instrumental in the 50% price increase in the S&P 500 over the same period,” wrote Gross, alluding to the 10-year Treasury note yield sitting under 1%, compared with the aggregate yield for the S&P 500 index at 1.6%.
The 76-year-old investment titan sheds light on the Fed’s asset purchasing programs and other stimulative measures that are providing an extraordinary backstop in financial markets, as well as the fiscal relief packages from D.C., as part of the foundation for investor zeal in the face of what he postulates as inflated values.
He also illustrates that the market and economy may get too used to injections from the government, and “how many fiscal packages can the stock market stand before it realizes that GDP is now opioid-like, dependent on more and more dollars from Washington that turn our Republican supply-side capitalistic behemoth into a universal income-like sluggo similar to Europe?”
For the time being, Gross is crediting the bulk of the recent gains for the Dow and the S&P 500 index and the growth companies in the Nasdaq including Tesla [$TSLA], to rock bottom interest rates in force.
Bill’s report for January comes after he and his partner, Amy Schwartz, were petitioned by Superior Court Judge Kimberly Knill to not violate the noise law of the Laguna Beach municipal code or play music on their outdoor speakers and directed them to stay at least 16 feet away from their seaside neighbor. Seems civil, right?
The ruling originally transpired from Gross’s neighbor, Mark Towfiq, purporting a “targeted campaign of harassment” after he complained about a large glass statue that he said was put up without permits.
Ultimately, the animosity between the two neighbors carried over into court. Towfiq took the stand to state his case behind a plastic barrier, but just as he began to testify Gross complained he couldn’t hear. Towfiq’s lawyer told the judge, “Your honor, I think it’s sufficiently loud and clear?” “TO YOU!” Gross shouted.