Bill Gross Says Investors Should Not Be 'Allured' by 'Trump Bull Market'Bill Gross Says Investors Should Not Be 'Allured' by 'Trump Bull Market'

By Jennifer Ablan

NEW YORK, March 9 (Reuters) - Bond investor Bill Grosswarned on Thursday that investors should not be tempted intobuying high-flying equities and corporate bonds, given thepossibility that U.S. President Donald Trump might fail to enactpolicies that fuel economic growth.

Wall Street's main indexes have rallied since Trump waselected president and remain close to all-time highs, driven byoptimism that his policies may stimulate growth in variousindustries and push share prices even higher.

"Don’t be allured by the Trump mirage of 3-4 percent growthand the magical benefits of tax cuts and deregulation," Grosssaid in his latest Investment Outlook, which is released duringthe first week of every month.

"The U.S. and indeed the global economy is walking a fineline due to increasing leverage and the potential for too high(or too low) interest rates to wreak havoc on an increasinglystressed financial system. Be more concerned about the return ofyour money than the return on your money in 2017 and beyond."

Gross, who runs the Janus Global Unconstrained Bond Fund,characterized the run-up as the "Trump bull market and thecurrent 'animal spirits' that encourage risk."

Details on Trump's plans remain scarce, however, and equitygains have moderated on growing concerns that stock valuationsmay be high.

The S&P 500 is trading at about 18 times forward earningsestimates against the long-term average of about 15 times,according to Thomson Reuters data.

Gross said the global economy has created more creditrelative to GDP than that at the beginning of 2008’s greatcredit recession.

"In the U.S., credit of $65 trillion is roughly 350 percentof annual GDP and the ratio is rising," Gross said.

"In China, the ratio has more than doubled in the pastdecade to nearly 300 percent. Since 2007, China has added $24trillion worth of debt to its collective balance sheet. Over thesame period, the U.S. and Europe only added $12 trillion each."

Gross said central banks are attempting to walk a fine linebetween generating mild credit growth that matches nominal GDPgrowth – "keeping the cost of credit at a yield that is not toohigh, nor too low, but just right. (Federal Reserve chair) JanetYellen is a modern day Goldilocks."

While Gross rated Yellen as "so far, so good, I suppose," hesaid the U.S. recovery has been weak by historical standards.Yet banks and corporations have recapitalized, job growth hasbeen steady and importantly - at least to the Fed - markets arein record territory, "suggesting happier days ahead."

But Gross said "our highly levered financial system is likea truckload of nitro glycerin on a bumpy road. One mistake canset off a credit implosion where holders of stocks, high yieldbonds, and yes, subprime mortgages all rush to the bank to claimits one and only dollar in the vault."

It happened in 2008, Gross said, noting central banks werein a position to drastically lower yields and buy trillions ofdollars via Quantitative Easing (QE) to prevent a run on thesystem.

"Today, central bank flexibility is not what it was backthen," Gross said. "Yields globally are near zero and in manycases, negative. Continuing QE programs by central banks areapproaching limits as they buy up more and more existing debt,threatening repo markets and the day to day functioning offinancial commerce." (Reporting By Jennifer Ablan; Editing by Bernard Orr)