Formerly known as the ‘bond king’, Bill Gross, a legend in the fixed income market, has wasted no time in his brief career as a retiree: he has gone short on US Treasury bonds in which he used to invest, he has been playing cat and mouse with and allowed himself to make a fortune on energy prices.
The legendary founder of Pacific Investment Management (Pimco), the largest bond manager in the world, now invests for his charitable foundation and has shared his current operations in an interview with Bloomberg TV.
Gross confesses that he has been betting against the US 10-year bond through the futures market and that he maintains his short position, something he justifies in the cocktail of a weaker dollar and stimulus-driven demand that will cause more inflation. “Inflation, currently below 2%, is not going to be below 2% in the coming months,” Gross predicts. “I see ahead a figure between 3% and 4%.”
Bond territory is all too familiar to Gross, 76, out of Pimco since 2014 after a dispute with partners. The investor explains that he made his bearish bet against the T-Note when its yield, now close to 1.6%, was some 35 basis points lower. Like others who have turned increasingly bearish on bonds, he predicts price pressure will increase as the recently passed bond makes its way into an economy already poised to accelerate. “There is significant pent-up demand, pent-up buying power that can be unleashed if consumers want to go in that direction, and I think to some extent they will,” he says.
A market gauge for inflation, the 10-year breakeven rate, rose Tuesday to the highest level since January 2014. Gross notes that commodity prices have risen nearly 40% since bottoming out last April. . Meanwhile, and Jerome Powell continues to conspire to ignore inflation spikes until employment targets are met.
Gross isn’t so sure Powell has the patience, though. Since the 1960s, he says, the Fed has not deliberately let inflation run wild. “After three to six or twelve months with 3% to 4% inflation, they’ll give their current policies a pause,” he predicts.
But not everything has been the bonuses. His other recent bets have been more esoteric, although in line with his operations after leaving Pimco. Running the Janus Unconstrained fund until his retirement in 2019, Gross often sold volatility, looking to make money on mispriced options. That’s what lured him out of the GameStop frenzy in January.
Gross recounts his sale of call options at GameStop, initially at prices between $150 and $200, and the momentary loss of $10 million. Gross refused to walk away and says he managed to make a profit of about $10 million by getting out of the trade when the stock finally fell.
Now he’s back in, selling calls at $250 and $300, meaning he could face losses if the stock, now trading near $210, breaks above those levels. “The volatility is very high,” he says. “I think it’s a perfect opportunity for option sellers, not buyers.”
The energy adventure
Beyond this retail rush, throughout the pandemic, heavyweight investors desperate for yield have also sought out unconventional investment destinations. For Gross, one of those adventures was natural gas pipelines. The Pimco co-founder bought some master units of limited partnerships, attracted by the tax advantages and the 13% to 14% yields. Gross was also encouraged to make a similar bet.
Since then, gas prices have soared, buoyed by the oil market and accelerated by supply cuts last month during . An index that brings together several of these natural gas companies has risen nearly 28% this year. “I’ve gotten carried away by the energy,” Gross says. “That’s my main goal now.”
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