Bill Gross, a well-known investor in the bond market, has expressed concerns that a victory for Donald Trump in the upcoming US presidential election would be worse for the bond markets than the re-election of Joe Biden. Gross believes that Trump’s proposed tax cuts would worsen the growing US deficits, making the market more unstable and challenging.
Gross, who earned the nickname “bond king” during his time at the asset management firm Pimco, told the Financial Times that Trump’s return to the White House would lead to increased tax cuts and higher spending, which he sees as harmful to the economy. Although Biden’s presidency has also led to significant deficit spending, Gross views Trump’s policies as more damaging.
With less than six months to go until the election, Trump is currently leading Biden in many national polls and key swing states. Despite this, Gross’s comments challenge Trump’s campaign claim that he would manage the US economy and financial markets better than Biden. One of Trump’s major economic promises is to make his 2017 tax cuts permanent, a move that could cost $4 trillion over the next decade according to the Committee for a Responsible Budget.
Gross has become increasingly wary of the US deficit, which has made him rethink his bond investment strategy. The US fiscal deficit reached 8.8% of GDP last year, more than double the 4.1% recorded in 2022. Gross argues that this growing deficit is putting pressure on the market, leading him to conclude that the traditional bond investment approach is no longer viable.
Instead, Gross has shifted his investment strategy to focus on a closed-end fund that invests in preferred securities, contingent capital, and private credit, using some leverage to enhance returns. He finds this approach more attractive for investors who do not need high liquidity.
Additionally, Gross is cautious about the US equity markets. He advises investors to lower their expectations, suggesting that the high returns seen in the past may not continue. He warns that expecting returns of 10% to 15% may lead to disappointment and tighter budgets for investors.
Despite spending several hours a day monitoring the markets, Gross is also investing in areas that others might avoid. He holds significant investments in tobacco stocks and master limited partnerships (MLPs), which are tax-advantaged investments used to fund pipelines and other infrastructure. While many investors steer clear of tobacco for health reasons and avoid MLPs due to their tax implications, Gross sees potential for profit in these overlooked sectors.
In summary, Bill Gross’s analysis suggests that a Trump victory could negatively impact the bond markets due to increased deficits and spending. His comments highlight the importance of fiscal responsibility and caution investors about overly optimistic expectations for market returns.
