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Bill Gross Surprises With Short Bets on Treasurys, GameStop

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What You Need to Know

  • The PIMCO co-founder anticipates rising commodity prices, a weaker dollar and that stimulus-driven demand will spark inflation.
  • “Three to six to 12 months at 3% to 4% plus inflation will give [Federal Reserve Chairman Powell] pause in terms of his current policy,” Gross says.
  • He bought some master limited partnership units last year, attracted by tax advantages and yields of 13% to 14%.

Onetime bond king Bill Gross has been busy in retirement, shorting Treasury bonds, playing chicken with day traders on Reddit and even making a bundle on energy prices.

The Pacific Investment Management Co. co-founder, who runs money for his charitable foundation, shared some of his trades in an interview Tuesday on Bloomberg Television.

Gross said he bet against the 10-year Treasury through the futures market and remains short, anticipating a combination of rising commodity prices, a weaker dollar and stimulus-driven demand will spark inflation.

“Inflation, currently below 2%, is not going to be below 2% in the next few months,” Gross said. “I see a 3% to 4% number ahead of us.”

Treasurys are familiar territory for Gross, 76, who once managed the world’s biggest bond fund.

The other wagers are more esoteric, though consistent with the kind of investing he did after leaving Pimco in 2014 following a feud with his partners.

Options Activity

Running the Janus Unconstrained Fund until retirement in 2019, Gross often sold volatility, seeking to make money on mispriced options. That’s what drew him to the January frenzy in GameStop Corp.

He described selling call options on GameStop, initially at strike prices of $150 and $200, and losing $10 million as retail buying on Robinhood Markets helped drive the stock to almost $400.

Gross refused to fold and said he managed to book a profit of about $10 million after exiting the trade when the shares finally tumbled.

Now he’s back in, selling call options at $250 and $300, meaning he could face losses if the stock, now trading close to $210, surpasses those levels.

“The volatility is super high,” he said. “I think this is a perfect opportunity for options sellers, not buyers.“

10-Year Treasury Views

Gross said he entered his wager against the 10-year Treasury when the yield, now about 1.6%, was about 35 basis points lower.

Like others who have grown increasingly bearish on bonds, he predicts pressure on prices to rise as the recently passed $1.9 trillion Covid-19 relief bill finds its way into an economy already primed to accelerate.

“There’s significant demand that is stored up, power that is stored up that can be unleashed if consumers want to go in that direction, and I think to a certain extent they will,” Gross said.

One market proxy for inflation, the 10-year breakeven inflation rate, climbed on Tuesday to the highest since January 2014. Gross noted that commodity prices have surged by almost 40% since bottoming last April.

The Federal Open Market Committee is all but certain to hold interest rates near zero at the conclusion of its two-day policy meeting on Wednesday.

Federal Reserve Chairman Jay Powell, meanwhile, has promised to ignore spikes in inflation until the central bank determines that its revised targets for price stability and employment are met.

Gross isn’t sure he’ll have the necessary patience though. Not since the 1960s has the Fed let inflation run deliberately “hot.”

“Three to six to 12 months at 3% to 4% plus inflation will give him pause in terms of his current policy,” Gross said.

Searching for Yield

Throughout the pandemic, investors desperate for yield have been prospecting in unconventional places. For Gross, one such adventure was natural-gas pipelines.

He said he bought some master limited partnership units last year, attracted by tax advantages and yields of 13% to 14%. Gross was also encouraged that Warren Buffett was making a similar bet.

Gas prices have since taken off, buoyed by the oil market and accelerated by the shortages last month during the winter storm that paralyzed Texas. One index of natural-gas MLPs has risen almost 28% this year.

“I caught the ride on energy,” Gross said. “That’s my main focus now.”

(Photo: David Paul Morris/Bloomberg)

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