The last few months have been characterized by great volatility on the stock markets. The background is high inflation, rising interest rates, economic concerns and current geopolitical tensions. Nevertheless, there have recently been increasing hopes that the US Federal Reserve could bring about a soft landing despite tight monetary policy. The two star investors Bill Gross and Bill Ackman see it differently. They each expect a recession as early as the fourth quarter.
• Numerous stress factors are putting pressure on the stock markets • Yields for long-term US government bonds are soaring • Bill Gross and Bill Ackman end bets on falling bond prices Numerous stress factors are currently affecting the US stock markets. Inflation has continued to increase and the US Federal Reserve remains restrictive monetary policy and warns that further interest rate hikes are possible, raising concerns that this could lead to a decline in the economy. On the other hand, geopolitical tensions in the world have continued to increase. All of this contributes to increased volatility in the stock markets and creates uncertainty among investors.
This can also be seen in the US bond markets. The yields on ten-year US government bonds recently reached their highest level in 16 years at over five percent. Conversely, the prices for these bonds are falling ever lower. Since the yield on ten-year US bonds is considered an important indicator for the valuation of financial instruments, the bond market is particularly the focus of market experts.
Bill Gross and Bill Ackman end bets on falling bond prices
The two star investors Bill Gross and Bill Ackman had foreseen the fall of long-term US bonds and positioned themselves short accordingly. But that’s over now. Both star investors now assume that yields have reached their peak and bond prices are likely to rise again. PIMCO co-founder Gross now assumes that the gap between the returns on two- and ten-year bonds and between two- and five-year bonds will turn positive by the end of the year, as he announced on the short message service X.
Maybe next week. Want to tweet.
On bonds. Invest in the curve. Various combinations 2/10, 2/5. Should go positive before year end. I’m buying SFR h5 (SOFR futures). “Higher for longer” is yesterday’s mantra. 2/2– Bill Gross (@real_bill_gross) October 23, 2023
He therefore advised his followers to invest in this curve. He himself has now invested in short-term interest rate futures. The background to this advice is the market expert’s assumption that the US economy is likely to slide into recession in the fourth quarter of 2023. In this way, Gross is positioning himself contrary to the general hope on the market that a soft landing could still be achieved despite higher interest rates. For comparison: In the second quarter of 2023, US GDP grew by 2.4 percent compared to the same quarter of the previous year. Compared to the previous quarter, there was an increase of 2.1 percent.
Regional bank carnage and recent rise in auto delinquencies to long-term historical highs indicate US economy slowing significantly.
Recession in 4th quarter.
Best investments are equity arbs (CPRI and SGEN. VMW a long shot). I’m seriously considering regional banks again. 1/2– Bill Gross (@real_bill_gross) October 23, 2023
Bill Gross: Recession ahead
Gross bases his bearish attitude on the one hand on the major difficulties that numerous US regional banks had to contend with at the beginning of this year, which led to several bankruptcies. On the other hand, Gross refers to US data that shows that many Americans are falling behind on their car loan payments. As Bloomberg News reported with reference to data from Fitch, the number of subprime car loans with payments overdue by more than 60 days rose to 6.11 percent in September – the highest value since 1994. In this case, too, the reason is the higher key interest rates make it more expensive to take out new loans, making it harder for millions of car owners to keep up with their payments.
Gross himself wrote on
Bill Ackman also foresees an economic downturn
Bill Ackman also recently gave up his bets on falling prices of long-term US bonds, citing concerns about an impending recession in the US. He posted on X: “The economy is cooling faster than recent data suggests.” In another post, he warned that there was “too much risk in the world” to continue betting on falling bonds.
As Fortune explains, citing Ackman, rising geopolitical tensions and a slowing economy would make it unlikely that inflation and long-term bond yields would remain elevated. Yields would only remain elevated if the US Federal Reserve continued to raise interest rates. However, this is unlikely if the economy actually cools down noticeably, which would in any case be rather unfavorable given the global geopolitical tensions. For this reason, he gave up his short positions on 30-year government bonds.
Now we just have to wait and see whether the two market experts are right and whether the USA will soon face an economic downturn.
Editorial team finanzen.net
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