Legendary investor Bill Gross, known as the "old debt king," recently announced on X (formerly Twitter) that the US economic recession will hit in the fourth quarter. He suggests investors to invest in yield curves, futures and stock arbitrage linked to the Guaranteed Overnight Funding Rate (SOFR).
The difficulties faced by regional banks and the recent rise in default rates on car loans to long-term historical highs indicate a significant slowdown in the US economy, with a recession expected in the fourth quarter, "he wrote.
Fitch Ratings previously reported that in September, 6.11% of subprime borrowers defaulted on car loans within 60 days, setting a record proportion, and the car recovery rate also significantly increased.
During his tenure at Pacific Investment Management (PIMCO), Gross helped operate the world's largest public fund and earned the nickname of "debt king". After leaving PIMCO, Gross switched to Junley Henderson Group, but there, Gross experienced a career 'Waterloo' where his managed Junley Henderson Global Unrestricted Bond Fund performed poorly. In March 2019, Gross announced his retirement, but has continued to pay attention to the financial market and frequently express his latest views on the market.
When discussing investment advice in the current context, Gross stated that he is "seriously considering" investing in regional banking stocks that have fallen significantly this year. Exchange Traded Fund SPDR S& The P Regional Banking ETF (KRE) has fallen by over 30% so far this year.
In addition, Gross also talked about some M&A arbitrage transactions. He also suggested that investors bet that the yield curve of US treasury bond bonds would continue to become steeper, and the yield curve is expected to break through the negative area for the first time in more than a year. After the long-term yield rose, it was close to catching up with the short-term yield, and the difference between the 10-year US Treasury yield and the two-year US Treasury yield on Monday was within 30 basis points.
According to Dow Jones Market Data, the 10-year US Treasury yield has been lower than the two-year US Treasury yield for 327 consecutive days, the longest duration since the 444 trading days ending on May 1, 1980.
Gross said he is betting on steepening the yield curve through interest rate futures. He expects that as the economic slowdown forces investors to adjust their expectations for the timing of the Federal Reserve's interest rate cut, the yield curve will once again enter a positive zone by the end of this year.
'Maintaining high interest rates for a longer period of time' has become the 'curse of yesterday', 'he said.