In his latest monthly outlook, titled Populism Takes a Wrong Turn, Bill Gross mentioned that President elect, Donald Trump will be a one term president, whose “tenure will be a short four years but is likely to be a damaging one for jobless and low-wage American voters.”
The Bond Guru believes that while Trump “promised jobs and to make America great again, his policies of greater defense and infrastructure spending combined with lower corporate taxes to invigorate the private sector continue to favor capital versus labor, markets versus wages, and is a continuation of the status quo.” Mentioning that Trump’s plan to repatriate corporate profits to the US for infrastructure spending would doubtly succeed, favoring instead dividends, corporate bonuses, and stock buybacks.
However, he doesn’t believe a Clinton Administration could have done much better. He did not vote for either of them given “both the Clinton Democrats and almost all Republicans represent the corporate status quo that favors markets versus wages; Wall Street versus Main Street.”
In his mind, there are better solutions than either party’s election platform. He mentions a “Keynesian/FDR job corps or a Kennedyesque AmeriCorps that puts people to work helping other people” as an example of this. According to him, the government must step in, not by reducing taxes, which will only increase profits at the expense of labor, but by being the employer of last resort in hopefully a productive way.
So he warns that “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.”
He believes investors must drive with caution, understanding that higher deficits resulting from lower taxes raise interest rates and inflation, which in turn have 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.” He mentioned before warning that the Populist sunrise has barely broken the horizon.