Bill Gross thinks the 'Trump Rally' is built on shaky foundations

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Billionaire bond fund manager Bill Gross doesn’t think Donald Trump will be able to lift US economic growth significantly, and, as a consequence, thinks the rally in risk assets since his election win is built on shaky foundations.

In an email sent on Thursday obtained by Bloomberg, Gross said that future growth is primarily a function of productivity, which has flat lined for the last several years and shows little promise of accelerating.

He also said that the benefits of Trump’s mooted fiscal stimulus package to fund infrastructure investment, totaling $US1 trillion over ten years with 85% to be financed from the private sector, will likely provide only a temporary boost to growth.

“A strong dollar and continuing structural headwinds including aging demographics, de-globalisation trade policies, and accelerating debt-to-GDP in almost all countries at now higher interest rates, promise to contain productivity at perhaps 1% annual growth rates and therefore real GDP growth at 2%,” said Gross, portfolio manager of the $US1.7 billion Janus Global Unconstrained Bond Fund.

On the rally currently underway in US stocks, something that has seen the Dow Jones Industrial Average gain close to 5% since the November 8 election, Gross says that investors “should move to cash and cash alternatives, such as high probability equity arbitrage situations”.

While Gross is a bond guy, something to keep in mind given the rotation out of bonds to stocks since the US election which has fueled the risk rally, he’s not the only well known analyst to question the merits of Trump’s fiscal plans.

In a note released last week, Bill Evans, chief economist at Westpac, cast doubt on whether Trump’s stimulus plans would boost US economic growth meaningfully, suggesting that the president-elect will need to tweak the mix between fiscal spending and tax cuts if it’s going to succeed.

“Unless his team is aware of a massive list of public assets that could be privatised with the funds being used to finance the road/bridge/inner city spend, this policy is likely to fail due to a lack of support from the private sector,” said Evans.

“My view on policy as it stands is that a much larger and realistic infrastructure package needs to be embraced at the expense of a significantly more modest Tax Package.”

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