- Win McNamee/Getty Images
Bill Gross thinks America has allowed populism to take hold with the election of Donald Trump as president and that it is making a big mistake.
In his most recent investment outlook, the Janus fund manager and bond guru said Trump’s election was a misguided attempt by American workers to fix their problems and would only make their plight worse.
Comparing Trump to a fox let into the hen house, Gross said the proposals so far from the transition team had shown nothing to benefit the working-class Americans who helped propel Trump to his unexpected victory.
“But while the Fox 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,” the letter said.
Gross said such policies, like a lower corporate tax rate, were misguided given that the effective tax rates on average for S&P 500 companies were well below the statutory rate of 35% anyway. He also said the idea of a tax holiday to bring cash back in from overseas would not have the effect that Trump has promised.
“The last time such a ‘pardon’ was put into law in 2004, no noticeable pickup in investment took place,” Gross wrote. “Of the $362 billion that earned a ‘tax holiday’, most went to dividends, corporate bonuses, and stock buybacks.”
Given these policies and his predictions for their impact on Americans, Gross said Trump was destined for a one-term presidency.
“His tenure will be a short four years but is likely to be a damaging one for jobless and low-wage American voters,” Gross wrote.
Despite his negative outlook for a Trump presidency (though to be fair, Gross hasn’t been optimistic about much of anything lately), the investor said he understood where the populous discontent came from.
“Both the Clinton Democrats and almost all Republicans represent the corporate status quo that favors markets versus wages; Wall Street versus Main Street,” the letter said. “That’s why the American public and indeed global citizens will continually take a wrong turn in their efforts to neuter the establishment and to regain several decades’ lost momentum in real wages versus real profits.”
Gross, for his part, believes a government-led program to employ Americans such as John F. Kennedy’s AmeriCorps or Franklin D. Roosevelt’s New Deal employment programs would be a better method of solving Americans ills.
Lacking that, Gross said, the establishment has given way to a populist turn for global politics that Gross thinks is unlikely to be as satisfying as voters or investors – who have pushed stocks to near all-time highs – expect.
“Global populism is the wave of the future, but it has taken a wrong turn in America,” Gross said.
“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.”