Bill Gross: Trump good for stocks now, but bad for 'long-term debt crisis'

Bill Gross warns Trump could add to long-term debt crisis

President-elect Donald Trump will only add to a "long-term global debt crisis," bond guru Bill Gross said Tuesday in his latest market message.

For investors, the near-term ramifications likely will be more gains in the stock market. But the picture down the road isn't as simple.

"There's no doubt that many aspects of Trump's agenda are good for stocks and bad for bonds near-term — tax cuts, deregulation, fiscal stimulus, etc.," Gross, who runs the $1.7 billion Janus Global Unconstrained Bond fund, said in a letter to clients. "But longer term, investors must consider the negatives of Trump's anti-globalization ideas which may restrict trade and negatively affect corporate profits."

Indeed, equities have rallied since the election, with the registering about a 5 percent price gain.

But Gross has been critical of the man who will be the country's 45th president, saying Trump's policies will be "damaging" to the working class. He also predicted Trump will serve only one term.

His December newsletter is titled "Red is the New Green," a play on the prison drama "Orange is the New Black." Debt is the "red" that is imprisoning the global economy, according to the analogy.

Gross points out eight ways that policymakers have approached the debt crisis. Those methods include central banks buying debt and keeping interest rates low, talking about normalizing rates without actually doing it, and liberalizing accounting rules to mask debt issues.

As it pertains to Trump, he cites three strategies that will be utilized.

One is focusing on fiscal policy, including government infrastructure spending and tax cuts. "Everyone wants those potholes fixed, don't they? Everyone wants lower taxes too!" Gross said.

Another is to "promote capitalism — even though government-controlled, near-zero percent interest rates distort markets and ultimately corrupt capitalism as we once understood it."

Finally, he said policymakers simply are pushing the debt issues off to the next generation: "Plan to eventually retire from the Fed/Congress/executive wing and claim it'll be up to the millennials now."

In that environment, Gross believes investors should increase cash and cash alternatives and shorten bond duration. Gross' fund this year has returned about 5 percent, which trails the stock market but is in the top fifth of its peers, according to Morningstar.

"On TV, 'Orange Is the New Black,' yet in the markets, 'Red' (in some cases) may be the new 'Green' when applied to future investment returns," he wrote. "Be careful — stay out of jail."