New York (CNN Business)Bill Gross started off his investment outlook for 2021, titled “A Little Bit Softer Now,” on an unusual note, discussing a legal spat involving a neighbor and complaining that his new automatic toilet seat didn’t lift as quickly as it should.
Then he got down to brass tacks. His favorite market sector: natural gas pipelines, whose yields he estimates to be between 9% and 12% for investment grade stocks with certain tax advantages. It’s also why he suggests investors take a look at Magellan Midstream Partners (MMP), BP Midstream Partners (BPMP) and Enterprise Products Partners (EPD). But Gross couldn’t say the same for the newly debuted blue-chip stock, Tesla (TSLA), calling it “definitely overvalued.” This despite the electric carmaker’s impressive stock surge over the past year, which has led it to the top rank of the most valuable US automaker and a spot in the S&P 500. Growth stocks, particularly 2020’s biggest IPOs including Snowflake, Airbnb and Doordash will struggle to live up to the expectations of what Gross calls “day-trading Robinhoods,” he added. The same goes for SPACs or special acquisition companies and the “Teslas of 2020.” “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. Read MoreHe attributes their potential down performance to the Federal Reserve’s commitment to keeping interest rates at near zero for years. “A lot of the market’s appreciation over the past two years, especially for growth stocks, has been due to lower real interest rates,” Gross said. A rally that will only continue if real yields stay “substantially negative,” he continued.On a broader note, the investing legend warned the scarring impact of the coronavirus on the economy — coupled with a stock market pumped with assistance from the Fed and fiscal stimulus — could begin to mirror the stock markets of Nordic and European countries. It’s a cause of concern for Gross, who cites that both of these countries’ markets trade at a lower price-to-earnings ratio than some of the newest IPOs and stocks like Microsoft currently trading on Wall Street. “How many fiscal packages can the stock market stand before it realizes that GDP is now opioid-like, dependent on more and more dollars from Washington that turn our Republican supply-side capitalistic behemoth into a — gasp! — ‘universal income-like’ sluggo similar to Europe? To avoid that, it seems to me, requires unemployment to return to pre-covid levels. Fed Chairman Jerome Powell has said as much — but we’re far, far from it,” Gross said.