Source: Gelonghui

According to the Financial Times, “Old Debt King” Bill Gross recently warned that compared to Biden, if Trump wins the US presidential election, it will be more disruptive to the bond market.

Gross believes that because Trump's plan advocates continued tax cuts, this will exacerbate America's already rapidly growing deficit.

However, he also pointed out that Biden's presidency also caused trillions of dollars in deficit spending.

He said bluntly: “Trump's election will be even more destructive.”

When Gross made these remarks, it was less than six months until the November US presidential election.

Just a few days ago, a Manhattan jury is expected to begin reviewing the “sealing fee” case, in which Trump may become the first former US president to be convicted.

Currently, Trump is ahead of Biden in most national polls and recent surveys of voters in key swing states that may decide the election.

He has also received support in recent days, including former rival Nikki Haley and billionaire Steven Schwartzman.

Gross's warning weakens one of Trump's core arguments during the campaign that he will manage the US economy and financial markets better than Biden.

One of Trump's key economic plans is a promise to make the 2017 tax cuts permanent, a move the Responsible Budget Committee expects to cost $4 trillion over the next ten years.

In the latest warning, Gross stated, “The culprit is the deficit, which increases supply by $2 trillion (each year), which will put some pressure on the (bond) market.”

Stock market investors need to lower expectations

As for US stocks, Gross is also relatively pessimistic, warning investors “need to adjust expectations” rather than expecting the S&P 500 to repeat last year's 24% return indefinitely.

Since this year, the S&P 500 index has accumulated a cumulative increase of more than 11%, and a cumulative increase of more than 24% last year.

He said, “Over time, the market should return. For me, this meant that the price increased less than it actually was. If people expect 10% or 15%, the budget will be reduced.”

He revealed that he spends 5-6 hours watching the market every day, and currently has heavy positions in tobacco stocks and MLP securities.

The “total return” strategy is dead

At the beginning of May, Gross predicted that the “total return” strategy was dead due to the rapid increase in the US fiscal deficit. This strategy was pioneered by Gross. It can not only earn interest income, but also obtain value-added income from rising bond prices and falling yields.

Last year, the US fiscal deficit was 8.8% of GDP, more than double that of 4.1% in 2022.

Gross wrote that in the next 12 months, the 10-year yield is likely to rise above 5% because the government issues a large number of bonds to the market. Currently, the US 10-year Treasury yield is 4.464%.

He believes that the US government is extremely dependent on borrowing, and that the annual treasury balance needs a net increase of up to 2 trillion US dollars to maintain economic growth.

Gross wrote, “Those who advocate lower interest rates will face an unstoppable rise in the supply of treasury bonds and an endless drop in bond prices. The total return strategy is dead, don't let them sell you a bond fund.”

editor/tolk