Pimco says a $1.9 trillion stimulus could push US growth to 7.5% this year – a rate not seen since the 1950s

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President Joe Biden has pushed a $1.9 trillion stimulus plan

The US economy could grow by 7.5% in 2021 – a rate not seen since the 1950s – as a result of President Joe Biden’s $1.9 trillion stimulus package, analysts at investment giant Pimco said in a note on Wednesday.

Pimco predicted that although this rapid growth would push up inflation to above 2% over the “next several years”, it is unlikely to cause price rises to spiral due, in part, to the reduced bargaining power of workers.

Pimco head of policy Libby Cantrill and economist Tiffany Wilding said they expected the eventual stimulus package to be close to the $1.9 trillion size that President Biden is seeking.

They said the legislation’s focus on enhancing social safety net provisions such as unemployment benefits, coupled with direct support to households and businesses, “boosts the near-term growth outlook.”

Cantrill and Wilding added that the size of the package may also help to cushion the blow to the economy should any problems crop up, such as a slower-than-expected vaccination program.

They upped their growth prediction for the US economy in 2021 to between 7% and 7.5%, more than making up for the 3.5% contraction in 2020.

A 7.5% expansion would be the strongest since the early 1950s, although the US saw growth of more than 7% in 1984.

Rising growth expectations have troubled financial markets lately, however, as they have led to higher bond yields. This has made stocks look less attractive and pulled down the tech-heavy Nasdaq index this week.

The Pimco note said the rapid economic growth and rise in employment “doesn’t have huge implications for our inflation outlook.” Cantrill and Wilding said this was in part because a decline in labor unions means workers are now less able to achieve wage rises.

Nonetheless, Pimco expects US inflation to rise to 2% in 2021 before dropping to around 1.5% by the end of the year. It then expects inflation to gradually accelerate to a range of 2.2% to 2.5% over the course of the next several years.

“It’s not surprising that more investors are worried about another inflationary accident,” Cantrill and Wilding said.

Yet they added: “While a period of above-target inflation has become more likely, in our view, the likelihood of a self-reinforcing inflationary process similar to what happened in the 1970s is still relatively low.”

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Billionaire investor Bill Gross made $10 million betting against GameStop – after Elon Musk’s ‘GameStonk!!’ tweet helped put him $15 million in the red

bill gross
Bill Gross.

  • Bill Gross made about $10 million betting against GameStop in January.
  • The billionaire investor was down by $10 million to $15 million at one point.
  • The Pimco cofounder criticized Elon Musk for cheering on the GameStop buyers.
  • Visit Business Insider’s homepage for more stories.

Billionaire investor Bill Gross made an ill-timed bet against GameStop in January that left him down as much as $15 million at one point. However, he held on until the video-game retailer’s stock plunged, and walked away with about $10 million.

Gross, who cofounded Pimco and ran its flagship Total Return fund, now manages money for his family and foundation. He used options to wager that GameStop’s stock price would fall, he said on the Citywire Selector podcast this week. 

“I knew I had an advantage over Reddit and the boys,” Gross said, highlighting his access to real-time options and volatility data on his Bloomberg terminal. However, he opened a bearish position on GameStop well before its shares peaked at north of $480 on January 28, and paid the price.

“I got in too early,” he said. “I got short around $150 or $100 and at a decent size. I was losing millions of dollars and that’s not a good feeling when you go to bed.”

“Matter of fact, you wake up three or four times in the middle of the night and you check out GameStop on the black market,” he continued.

While Gross admires Tesla CEO Elon Musk and views him as a “modern Thomas Edison,” he didn’t enjoy it when the executive tweeted “GameStonk!!” on January 26, throwing his weight behind the short squeeze.

“Musk is a little devil and he enjoys playing these games,” Gross said. “He’s just a frisky guy and so I didn’t resent that, but it doubled the stock and that’s when I lost the most sleep – it was after Musk did that.”

“He probably should have known better, because that’s close to yelling ‘fire’ in the theater,” the investor added.

Gross thought about giving up and stomaching a loss, but he was confident that some of the day traders driving up the stock wouldn’t be able to resist cashing out. 

“I’m not regulated here like some of the hedge funds, and my broker’s not calling me for margin and so on,” he said. “At $400 I said, ‘Hell no,’ and so I doubled up to catch up, which was for me a very ballsy move.”

Gross also analyzed the volatility of GameStop stock and determined that he was almost certain to come out ahead.

“It was one of those slam-dunk moments where yes, you could lose money, yes it could go to $1,000, but the volatility was priced so high that it was really hard to lose,” he said.

“Risk-reward, it became one of those ‘you’re the casino,'” Gross continued. “That’s when I doubled up, I sold more calls, and basically got out. I made a lot of money, maybe $10 million. But I was down $10 million and maybe down $15 million.”

Gross felt vindicated that his assessments of the human nature and herd psychology at play, as well as the swings in the stock, were correct.

“It was a nice, intellectual, non-emotional moment for me in which I correctly analyzed the social aspects and the fact that people would turn on the group and sell before others thought they were gonna sell, and the volatility being so high priced that it was really hard to win,” he said.

Regardless, Gross gave kudos to the Wall Street Bets community for their ingenuity.

“Their strategy to attack and squeeze shorts, certainly with GameStop, was a good one,” he said. “I was really not expecting the stock to go through $10, $20, $30, $40, $100, $200, $300, $400 within the space of a few days.”

However, the astounding stock rally was never going to last, he said in a research note on February 2. “Even without regulatory action, the plan was doomed from the beginning,” he wrote.

Gross described the investors who bought options with 750% daily volatility as “fish at the poker table” in an earlier research note. He added that a “musical chair, me-first exit” from GameStop was inevitable and the price was bound to return to normal levels.

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Billionaire investor Bill Gross says the ‘Teslas of 2020’ may struggle in 2021 and reveals his top sector pick for the new year

FILE PHOTO: Billionaire investor Bill Gross listens during the Milken Institute Global Conference in Beverly Hills, California, U.S., May 3, 2017. REUTERS/Lucy Nicholson/File Photo
Billionaire investor Bill Gross listens during the Milken Institute Global Conference in Beverly Hills

Billionaire investor Bill Gross said 2020’s growth stocks “may struggle” in 2021 and revealed his favorite sector pick for the new year in his latest Investment Outlook letter. 

According to the PIMCO co-founder, stocks that soared in 2020, like Tesla and certain SPACs, won’t repeat the performance in 2021.

Tesla was up over 740% in 2020, with most Wall Street analysts predicting either a decline or only slight increase for the EV maker’s stock price in the next 12 months. Meanwhile, the top performing SPAC according to Nasdaq, QuantumScape, flew over 1,115% in 2020. 

For returns in 2021, Gross is eyeing natural gas pipeline stocks within the energy sector of the market. He said the market sector yields between 9% and 12% for investment grade stocks with certain tax advantages. Gross told inventors to “take a look” at Magellan Midstream Partners, BP Midstream Partners LP, and Enterprise Products Partners L.P.    

Read more:Buy these 30 stocks that handily beat the market in 2020 and are poised for the best global returns in 2021, RBC says

“TSLA? In the hands of the Robinhood gods I’m afraid it’s definitely overvalued,”he added. 

The billionaire investor also commented on what’s behind the sky-high asset prices in the market.

“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 said. 

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