Bill Gross, the man who has been hailed as the bond king, has warned the investment world not to get carried away by Trumponomics.
Mr Gross, who for many years was the high profile name behind Pimco, the fund he co-founded, and which had $270 billion worth of assets under his stewardship, is currently fund manager for Janus. It is thought he is worth around $2.4 billion.
But a fan of Trumponomics, he is not.
Markets have been booming, in part on the anticipation that President Trump’s planned tax cuts, reduced regulation and infrastructure spending will lead to US growth rising sharply.
But writing in his latest monthly outlook, Mr Gross said: “Don't be allured by the Trump mirage of 3-4 per cent growth and the magical benefits of tax cuts and deregulation.”
He added: “The US and indeed the global economy is walking a fine line due to increasing leverage and the potential for too high (or too low) interest rates to wreak havoc on an increasingly stressed financial system."
And rather gloomily, he said “Our highly levered financial system is like a truckload of nitro-glycerine on a bumpy road.” He added “One mistake can set off a credit implosion where holders of stocks, high yield bonds, and yes, subprime mortgages all rush to the bank to claim its one and only dollar in the vault. It happened in 2008, and central banks were in a position to drastically lower yields and buy trillions of dollars via Quantitative Easing (QE) to prevent a run on the system. Today, central bank flexibility is not what it was back then. Yields globally are near zero and in many cases, negative. Continuing QE programs by central banks are approaching limits as they buy up more and more existing debt, threatening repo markets and the day to day functioning of financial commerce.”
Mind you, Mr Gross has been here before, he seems to have a fondness for nitro-glycerine metaphors. In 2010 he said of the UK: “The UK is a must to avoid. Its gilts are resting on a bed of nitro-glycerine. He said that the UK had “high debt with the potential to devalue its currency, presenting high risks for bond investors.”
The price of UK bonds have shot up in value since Mr Gross said that.
Returning to his latest outlook, he said; “In the US credit of $65 trillion is roughly 350 per cent of annual GDP and the ratio is rising. In China, the ratio has more than doubled in the past decade to nearly 300 per cent.”
He said: “Since 2007, China has added $24 trillion worth of debt to its collective balance sheet. Over the same period, the US and Europe only added $12 trillion each.”