Bill Gross reveals that he did not vote for either “establishment party’s candidate” in the Nov. 8 presidential election, and so in his monthly investment outlook for Janus he writes he was “amazed [with] almost amused bewilderment” of the “extraordinary fury” of the American populist electorate who “‘unwittingly’ (lack of wit)” let “the Trumpian Fox” enter the “Populist Henhouse.”
Donald Trump’s tenure as president, Gross writes, “will be a short four years but is likely to be a damaging one for jobless and low-wage American voters.” Why? Because of “Middle America’s misinterpretation of what will make America great again.” While Trump was apparently successful at luring voters with his promise of more jobs, Gross argues that the promised Trump policies of heavy spending on infrastructure improvements and defense “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.”
In his monthly epistle, Populism Takes a Wrong Turn, Gross counters the conventional wisdom that lowering corporate tax rates and encouraging repatriation of American companies’ foreign profits will provide a major boost to the U.S. economy.
While “Republican pleas for tax reform are centered around the argument that America has one of the highest corporate tax rates in the world at 35%,” it’s just “not so,” Gross writes, saying at an average corporate tax rate of 24%, “U.S. corporations rank among the world’s most lightly, as opposed to heavily, taxed.”
As for repatriation of profits from overseas, Gross says that “the logic that the money will be spent for investment here in the U.S” is “doubtful,” since “the last time such a ‘pardon’ was put into law in 2004, no noticeable pickup in investment took place.”
Make no mistake, Gross is not a Hillary Clinton fan and doubts that a President Clinton would be much better for real economic growth. “Both the Clinton Democrats and almost all Republicans represent the corporate status quo that favors markets versus wages; Wall Street versus Main Street,” he declares.
It’s that status quo, the erstwhile Bond King argues, that should give investors pause, “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.” His sober conclusion? “There is no new Trump bull market in the offing. Be satisfied with 3-5% globally diversified returns.”
What would be a better option? Gross believes one path, even if government-run, would be a “Keynesian/FDR job corps or a Kennedyesque AmeriCorps that puts people to work helping other people.”
While such a “patriotic” effort would be better run by the private sector, he argues that “corporations are fighting structural headwinds, such as demographic aging, technological displacement of jobs (robotization), deglobalization, and overleveraged balance sheets. They focus on the bottom line as opposed to the public welfare.” Rather than cutting taxes which would only “increase profits at the expense of labor,” government as “the employer of last resort” in such a jobs program would do so “hopefully a productive way.”
However, Trump’s brand of populism is “on the march” both here and abroad, and Gross concludes by warning that “the Wall Street, finance-led hegemon is fading. The Populist sunrise has barely broken the horizon.”
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