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The stories that matter about money and politics in the race for the White House
A Donald Trump victory in the US presidential election would be more “bearish” and “disruptive” for bond markets than Joe Biden’s re-election, according to longtime fixed income investor Bill Gross.
Trump’s return to the White House would worsen the growing US deficits that have soured him on the market and earned him the nickname “bond king” when he led asset manager Pimco, Gross told the Financial Times.
“Trump is the most bearish of the candidates simply because his programs advocate continued tax cuts and more expensive things,” Gross said, although he noted that the Biden presidency has also been responsible for trillions of dollars in budget deficits.
“Trump’s election would be more disruptive.”
Gross’ comments come with less than six months to go until the US presidential election in November, 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 who is convicted of a crime.
Trump, a Republican, leads Biden, the Democratic incumbent, in most national polls and in several recent surveys of voters in key swing states likely to decide the election. He has also received high-profile endorsements in recent days, including from his former opponent Nikki Haley and billionaire GOP donor Stephen Schwarzman.
But Gross’ comments undermined one of Trump’s central arguments on the campaign trail: that he would be a better steward of the U.S. economy and financial markets than Biden.
One of Trump’s key economic plans is a promise to make his 2017 tax cuts permanent, a move expected to cost the think tank Committee for a Responsible Budget $4 trillion over the next decade.
In an interview that ranged from his current market choices to the origins of his rare stamp collection, Gross expanded on what he’s learned while compiling four decades of his monthly investing outlooks into a new book.
The rapidly growing US deficit has turned Gross away from the bond strategy that made him famous and led him to declare in his latest view that “total return is dead.” The US budget deficit was 8.8 percent of GDP last year – more than double the 4.1 percent deficit recorded in 2022.
“The shortage is the culprit; a $2 trillion [annual] increase in supply. . . will put some pressure on the market,” he said.
Instead, Gross said, he has put his fixed-income allocation into a closed-end fund that invests in preferred securities, contingent capital and up to 20 percent private credit, while using some leverage to boost returns.
“It’s certainly more attractive to an investor who doesn’t need a lot of liquidity.”
Gross is also relatively pessimistic about U.S. stock markets, warning that investors should “temper their expectations” rather than expecting an indefinite repeat of last year’s 24 percent return for the S&P 500.
“Over time, markets should return. To me, this means that prices will rise less than is currently the case.”
“If people expect 10 or 15 percent, [they] start working with smaller budgets.”
Gross, who still watches the markets five or six hours a day on his personal Bloomberg terminal, also has large investments in tobacco stocks and securities known as master limited partnerships, a tax-advantaged way to finance pipelines and other businesses .
In both cases, he tries to take advantage of corners of the market that others avoid. Many investors avoid tobacco because of its health implications, while MLPs lose some or all of their tax benefits if they are held in mutual funds and pension funds.