The election of Donald Trump presents a no-win scenario for investors and has left veteran bond manager Bill Gross ‘bewildered’ in the face of expected damage to the United States.
In a strongly-worded outlook, entitled ‘Populism takes a wrong turn’, the Janus Capital manager pulled no punches and said the rise of populist politicians is expected but Trump is a step too far.
‘Populism is on the march and a Trump victory will do little to halt its advance in future decades. If anything, it is demographically baked in the cake. Investors, as The Economist astutely pointed out, face a possible no-win situation.'
‘Unless the worker’s share of GDP reverses its downward trend, and capital’s share peaks, then populists worldwide will reject establishment parties in almost every future election – initiating in some cases growth-negative policies revolving around trade, immigration, and yes, in Trump’s case, lower taxation that may lower GDP growth, not raise it.’
‘Global populism is the wave of the future, but it has taken a wrong turn in America,’ he added.
Gross therefore advised investors to ‘drive with caution’, as he said higher deficits resulting from Trump’s proposed lower taxes would raise interest rates and inflation, which in turn has the potential to produce lower earnings and P/E ratios.
‘There is no new Trump bull market in the offing. Be satisfied with 3-5% globally diversified returns. The Wall Street, finance-led hegemon is fading. The populist sunrise has barely broken the horizon,’ he added.
Expressing his personal opinion at the result, Gross said: ‘The Trumpian Fox has entered the Populist Henhouse, not so much by stealth but as a result of Middle America’s misinterpretation of what will make America great again.’
‘Not having voted for either establishment party’s candidate, I write in amazed, almost amused bewilderment at what American voters have done to themselves,’ he said, adding he expects Trump to have a ‘short four years’ in charge.
‘His policies of greater defence and infrastructure spending combined with lower corporate taxes to invigorate the private sector continue to favour capital versus labour, markets versus wages, and is a continuation of the status quo.’