Bond King Gross: Trump's "tax cuts" put more pressure on US bonds

Less than 6 months before the US presidential election, Bill Gross, the founder of the hedge fund Pimco, known as the "new bond king," believes that a Trump victory would be more "destructive" for the bond market than a Biden victory.

In a recent media interview, Gross stated that Trump's return to the White House would exacerbate the US fiscal deficit, which concerns him. Trump plans to continue advocating for tax cuts, which would be more destructive if he is elected.

During his campaign, Trump stated that he plans to make permanent the tax cuts he introduced in 2017. The "Committee for a Responsible Federal Budget" think tank estimates that these tax cuts will increase the US federal deficit by $4 trillion over the next 10 years. In the short term, tax cuts may only mean an increase in government deficits, but eventually the government will have to cut Medicare, Medicaid, food assistance, etc., to offset the cost of tax cuts.

The expanding US deficit has led Gross to abandon the bond strategy that made him famous and prompted him to declare in a recent outlook report, "total return is dead." Last year, the US fiscal deficit as a percentage of GDP reached 8.8%, more than double the 4.1% in 2022.

He believes that the continuously expanding US deficit is the main culprit dragging down the bond market; with supply increasing by $2 trillion annually, the market will continue to be under pressure. Gross himself has shifted his fixed income allocation to a closed-end fund.

Gross also holds a pessimistic view on the US stock market, warning investors to lower their expectations and not expect the high return rate of 24% seen in the S&P 500 last year to continue. He mentioned that he spends five to six hours a day observing the market and currently has heavy positions in tobacco stocks and MLP securities.

Based on the current situation, in several key swing states in the US election, Trump is leading over the incumbent President Biden in the polls. Moreover, Nikki Haley, a candidate defeated by Trump in the party primaries, and Stephen Schwarzman, the founder of Blackstone and a Republican heavyweight, have recently endorsed Trump, making his chances of winning optimistic. The only potential obstacle to his election is the ongoing "hush money case," and if convicted, Trump could become the first former US president to be found guilty