Javier Hernandez Esteemed as Wall Street’s ‘Bond King,’ Bill Gross anticipates a U.S. economic downturn by the last quarter of this year. He identifies the increasing problem of delayed automobile payments and the fiscal challenges plaguing regional banks as key factors triggering the prospective recession.
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Bill Gross Warns of Looming Economic Storm Clouds
As of Tuesday, October 24, 2023, equity markets showed signs of recovery, partially offsetting losses from the prior week. However, the market environment remains volatile, marked by a 10-year U.S. Treasury bond yield standing at 4.84%. Inflation has modestly ascended over the past two months, engendering expectations of a 0.25% interest rate hike at the upcoming Federal Open Market Committee (FOMC) meeting.
Bill Gross, an authority on bonds, publicly aired his expectations of a slowdown in the U.S. economic growth trajectory by the year’s end on the social media platform X (formerly known as Twitter). “A marked slowdown in the U.S. economy is signaled by recent turmoil in regional banks and a historical peak in auto loan delinquencies,” stated Gross. He further augmented his claim by forecasting a “recession in the 4th quarter.”
Late automobile loan payments have recently spiked, alongside other financial missteps like consumer loans and credit card defaults reaching their highest levels in more than a decade. As of last month, a worrisome 6% of sub-prime auto loan borrowers were delinquent by a full 60 days. A disturbing trend of vehicle repossessions emerged in January and has continued unabated. Interestingly, unlike consumer and auto loan delinquencies, single-family home mortgage defaults have not exhibited a similar sustained rise in 2023, although there has been a slight increase.
Scrutiny of the data presents a complex pattern of delinquency trends that vary based on mortgage type and the specific time period under consideration. The Mortgage Bankers Association (MBA) has highlighted a significant rise in delinquencies in the commercial real estate and multi-family sectors during the second quarter of 2023. Amid this landscape of increasing defaults and a persistently high federal funds rate, the year 2023 has been exceptionally challenging for regional banks. The situation deteriorated further following the sudden collapse of Silicon Valley Bank (SVB) in March.
In his social media commentary, Gross emphasized, “I am taking a renewed look at regional banks,” supplementing this with investment guidance: “Regarding bonds, invest along the yield curve.” Regional banks have not only underperformed this year but have also plunged further than their nadirs during the SVB crisis. The financial entity Huntington Bank has been particularly affected, resulting in the closure of multiple branches throughout the Midwest.
These regional banking institutions are intricately linked to commercial real estate (CRE) and are struggling to cope with the uptick in defaults. This situation, compounded by successive Federal rate hikes, has pushed their unrealized losses to precarious levels.
What are your thoughts on Gross’s forecast? Do you anticipate a recession arriving in the fourth quarter? We invite you to share your expert insights and viewpoints on this topic in the comments section below.
Frequently Asked Questions (FAQs) about Bill Gross Q4 Recession Prediction
What is the main prediction Bill Gross is making?
Bill Gross, an authoritative figure in the bond market often referred to as Wall Street’s ‘Bond King,’ is predicting a recession in the U.S. economy by the fourth quarter of the current year.
What are the key indicators that Bill Gross cites for his prediction?
Bill Gross identifies two primary indicators: the rise in overdue automobile payments and the financial struggles currently faced by regional banks.
Who is Bill Gross?
Bill Gross is a highly esteemed investment manager renowned for his expertise in the bond market. He is frequently referred to as Wall Street’s ‘Bond King.’
What is the current status of the U.S. economy according to the text?
As of October 24, 2023, the U.S. stock markets have shown some recovery but remain volatile. The 10-year U.S. Treasury bond yield is at 4.84%, and there is anticipation of a 0.25% interest rate increase in the upcoming Federal Open Market Committee meeting.
How are regional banks performing, and why is this concerning?
Regional banks are facing severe financial challenges, including a significant uptick in loan defaults. The year 2023 has been particularly hard for them, exacerbated by the sudden downfall of Silicon Valley Bank in March.
What trends in auto loan delinquencies have been observed?
Late payments for automobile loans have recently spiked, with 6% of sub-prime auto loan borrowers being 60 days delinquent as of last month. This is part of a broader trend of rising consumer debt defaults.
How are mortgage delinquencies trending?
While consumer and auto loan delinquencies have seen a consistent upward trend, single-family mortgage payment defaults have not shown the same level of sustained increase in 2023, although there has been a slight uptick.
What advice does Bill Gross offer for bond investment?
Bill Gross suggests that investors should “invest along the yield curve” when it comes to bonds.
What happened to Huntington Bank?
Huntington Bank, a regional financial institution, has faced significant pressure due to the challenging economic environment, leading to the closure of multiple branches across the Midwest.
What is the Federal Open Market Committee (FOMC) expected to do?
The FOMC is expected to increase interest rates by 0.25% in its upcoming meeting, partly in response to modestly rising inflation rates.
How are commercial real estate (CRE) and multi-family sectors performing?
The Mortgage Bankers Association has noted a significant rise in delinquencies in the commercial real estate and multi-family sectors during the second quarter of 2023.
More about Bill Gross Q4 Recession Prediction
- Bill Gross’s Official Social Media Profile
- Federal Open Market Committee Meeting Schedule and Announcements
- Mortgage Bankers Association Delinquency Reports
- U.S. Treasury Bond Yields
- Silicon Valley Bank Collapse: A Detailed Analysis
- Huntington Bank Branch Closures
- U.S. Inflation Data
- Auto Loan Delinquency Trends
- Commercial Real Estate Market Reports
- Regional Banks’ Financial Performance in 2023
10 comments
Surprised but not surprised about the auto loan delinquencies. The car market’s been unstable for months. bad news for us but good call by Gross.
Wow, Bill Gross’ prediction is pretty alarming. But considering his track record, can’t just brush it off. Got to reconsider my Q4 investments for sure.
Interesting that single-family mortgages aren’t showing the same trend as consumer loans. Maybe people prioritize keeping a roof over their heads?
With all this talk about traditional markets, maybe its time to look at alternative investments like crypto? just sayin.
Regional banks are in a mess, huh? Kinda saw it coming with the SVB fiasco earlier this year. Time to pull out?
If Gross is considering regional banks again, should we? Or is he playing 4D chess here?
inflation nudging up and FOMC planning to raise the rates? This is a red flag, people. Keep an eye on your portfolios.
Yield curve investment advice from the Bond King himself? Definitely worth a second look for anyone in bonds.
Been through ups and downs in the market, but when Bill Gross speaks, you listen. He’s seen enough cycles to know what he’s talking about.
Gross has been right before, but he’s not infallible. Still, a warning from him is not to be taken lightly. Gonna reevaluate my strategies for sure.