US economy

Bill Gross says Trump would be worse for bond markets than Biden

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A Donald Trump victory in the US presidential election would be “more bearish” and “disruptive” for the bond markets than the re-election of Joe Biden, according to Bill Gross, the longtime fixed-income investor.

Trump’s return to the White House would exacerbate the burgeoning US deficits that have soured him on the market that earned him the “bond king” sobriquet when he was running asset manager Pimco, Gross told the Financial Times.

“Trump is the more bearish of the candidates simply because his programmes advocate continued tax cuts and more expensive things,” Gross said, although he noted that Biden’s presidency has also been responsible for trillions of dollars of deficit spending.

“Trump’s election would be more disruptive.”

Gross’s comments come with less than six months to go until November’s US presidential election, and just days before a jury in Manhattan is expected to begin deliberations in the “hush money” case in which Trump could become the first former US president to be convicted of a crime.

Trump, a Republican, is leading Biden, the Democratic incumbent, in most national opinion polls as well as several recent surveys of voters in the key swing states that are likely to decide the election. He has also racked up high-profile endorsements in recent days, including from his former opponent Nikki Haley and billionaire GOP donor Stephen Schwarzman.

But Gross’s comments undercut one of Trump’s central arguments on the campaign trail: that he would be a better steward of the US economy and financial markets than Biden.

One of Trump’s key economic plans is a pledge to make his 2017 tax cuts permanent, a move that the Committee for a Responsible Budget, a think-tank, expects to cost $4tn over the next decade.

In an interview that ranged from his current market picks to the origins of his rare stamp collection, Gross elaborated on what he has learned while compiling 40 years of his monthly investment outlooks into a new book.

The burgeoning US deficit has turned Gross off the bond strategy that made him famous and led him to declare in his most recent outlook that “total return is dead”. The US fiscal deficit hit 8.8 per cent of GDP last year — more than double the 4.1 per cent deficit figure recorded for 2022.

“It’s the deficit that is the culprit; a $2tn [annual] increase in supply . . . is going to put some pressure on the market,” he said.

Instead, Gross said, he has been putting his fixed-income allocation into a closed-end fund that invests in preferred securities, contingent capital and up to 20 per cent private credit, while using some leverage to boost returns.

“It’s certainly more attractive for an investor that doesn’t need a lot of liquidity.”

Gross is also relatively pessimistic about US equity markets, warning that investors “need to temper their expectations” rather than expect an indefinite repeat of last year’s 24 per cent return for the S&P 500.

“Over time the markets should mean revert. To me, that means prices going up less than they have.”

“If people are expecting 10 or 15 per cent, [they] are going to be working with slimmer budgets.”

Gross, who still spends five or six hours a day watching the markets on his personal Bloomberg terminal, also has chunky investments in tobacco stocks and securities known as master limited partnerships, a tax- advantaged way of funding pipelines and other companies.

In both cases, he is seeking to profit from corners of the market that others avoid. Many investors shun tobacco for its health impact, while MLPs lose some or all of their tax benefits when held in mutual funds and retirement vehicles.


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