Jeffrey Gundlach
Jeffrey Gundlach, colloquially known as the "Bond King" is the founder of the DoubleLine Capital investment firm.
He speaks frequently and this post summarizes his talking points.
An Afternoon with David Rosenberg & Jeffrey Gundlach (October 1, 2026)
Link.
Barron's titled him the bond king in 2011, 15 years ago.
75% of the S&P 1500 stocks are in a correction right now.
440 of the stocks in the S&P 500 are down more than 21% from their high.
He thinks there is a lot of rot in private equity and private credit.
He follows social mood a lot. He has a good emotional memory about how things feel. In June/July 2026, he felt like we hit the peak of AI mania enthusiasm.
It seems like we've hit peak lunacy for AI stuff. Anthropic and OpenAI don't have any moat. And they want the government to provide some moats.
Something will have to happen with the US interest expense problem. Every bond is rolling off and getting refinanced at a higher interest rate. Debt has been growing faster than GDP for decades. Something will have to happen cause we can't grow our way out of the situation. There are two options.
- print it which would be inflationary
- restructure the debt. One way is to buy the long term securities and issue short term notes. The Fed can then artificially lower rates and bring down yields at the long end. This would also be inflationary.
He's been talking about the need for a balanced budget for the last 25 years.
There are some reasons the yields are relentlessly rising:
- the war and diesel
- monumental amount of bond issuance. All over the developed world and now with AI issuances.
Rates will continue to rise till something is done about it. One option is operation twist. Another is restructuring the debt.
Rosenberg:
- This is the most unhinged the bond market has been in his 40-year career.
- He thinks he will see the US dollar stop being the reserve currency in his lifetime (that's why he likes gold)
Warsh reminds Gundlach of Al Gore at the different presidential debates:
- first one was the "sighing Al Gore" when he was making noises when Bush said things he didn't like
- second one was the pumpkin makeup because he wore so much makeup
- third one was Mr. Nice Guy
Nobody knew who Al Gore actually was and that's why he lost the election.
Warsh is doing the same thing:
- at one press conference he sounds really hawkish
- then he sounds really dovish
- then he thinks it's funny to talk about "hiking", but the physical activity. But he's the guy who previously didn't want to talk about forward guidance.
- at the last press conference, he just dodged all the questions and didn't answer them
Inflation started getting picked up in the media a lot when national gas prices rose to more than $4.
He thinks the debt will hit $50 trillion before 2030, especially if there is a recession.
Interest rates, if left to market forces, will rise when the economy gets weaker because tax receipts will decrease and the deficit will get worse.
From 1980 to 2020, there were secularly declining interest rates. This isn't happening anymore.
He expects the hyperscalers to go from massive borrowing to zero overnight.
Gundlach thinks gold is going up. Gold has become a legitimate asset. You were laughed at for 20 years for recommending gold. He's quite bullish on gold at any level below $3,800.
He thinks the real inflation rate is 3-3.5%.
Index funds are completely price insensitive. They buy at the market cap percentage, regardless of price. We're using the retail index fund money (60% of all money in the US stock market) and they are using it as a dumping ground to create an exit for money losing companies. This is a very dangerous time period to be in an index fund.
He likes equal weighted stock indexes. He wants to get far away from the blast radius of the AI portion of the stock market.
Rosie: Warsh wants 2% inflation during an energy shock. This would destroy the economy.
Possible measures of the true risk free rate:
- 10 year Treasury
- MBS that originated 5-6 years ago. These won't default. These homeowners have a large unrealized capital gain. This yield is 7%.
- Well managed funds of the top-tier bank loan market. These give SOFR + 130 bp. SOFR is currently 4%, so you get 5.3%, which is the same as the 10-year Treasury, but it's a floating rate instrument during a hiking cycle.
He thinks you can get a "risk free" yield of 6% on a 2-year duration portfolio. He thinks this is a good allocation for 20% of your portfolio to wait for the stock/bond market to offer better opportunities.
He recommends 30% in bonds. He likes to barbell it.
- Safe: Total return bond fund that he runs. This owns no corporate or foreign bonds. Just US based and heavily in US government and MBSs.
- Risky: emerging market local bond funds. You want this actively managed. Don't put these in an index fund. He expects the currency translation to work in your favor. You want to avoid the serial defaulters.
Rosie thinks that shelter is quite deflationary. He thinks this will show over time. He thinks the labor market is cooling, but not cracking. Labor has no bargaining power.
Jeffrey Gundlach: We've Crossed to the Hard Side of the Street (September 18, 2026)
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Valuations of the markets are high. Shiller P/E ratio is 42. Every time it has been 35+, the forward 10 year earnings are negative.
AI was rolling along and everyone was believing in it and then the narrative changed dramatically to "AI will kill us all".
Gundlach Unlocked is to give the Doubleline funds that he recommends to buy. Recommendations:
- 30% equities: equal weighted US index. This way you don't have 40% of your portfolio in AI.
- 30% Fixed income: half in total return fund and half in local currency emerging market debt. He thinks you'll make money on the currency for the local currency emerging market debt.
- 20% in real assets. 10% gold & 10% in commodities.
- 20% dry powder
He's recommending to get everything in your portfolio away from AI.
We have a deficit that's heading towards 50 trillion and we may be running deficits of 10-12% in the next recession.
There will be fallout and losers in the search of the AI holy grail. He thinks we're close enough to get away right now.
He'd be surprised if there isn't some sort of a shock in the next year.
Diesel nationwide is $8. In some parts of California, diesel is $9.99 cause they don't have enough digits on the pump.
He doesn't see the energy price shock going away at all. Costco is rationing Kirkland motor oil because they didn't want people to start hoarding.
Gundlach thinks the CPI is heading to 4%.
They want to stay at the short end of the curve.
Gundlach feels like the ethos of optimism wore out in June 2026. It's when the hyperscalers issued bonds and they were rejected by the market.
A lot of people would be livid if the private credit funds end up getting bailed out.
Gundlach Unlocked: The Fed’s Next Move (September 11, 2026)
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Local currency emerging markets have a yield of about 7%. This is pretty good competition for the stock market and current valuations.
Investment grade bonds haven't seen spread widening, but the AI sector has seen large spread widening. The AI high yield spread has also widened vs the non-AI high-yield spread.
We all know that the US Treasury is borrowing way too much money.
Corporations also have a huge demand to issue debt.
They like short term TIPS cause they think the implied inflation rate is way too low compared to what will actually happen.
The US debt has been growing rapidly since the Great Financial Crisis and there is no end in sight.
We will probably be at $50 trillion of debt by 2032.
The Social Security system administrators will be out of money by 2032 (they are always overly optimistic and they will probably run out by 2029/2030). Social Security will have to be reformed.
Looks like we will set a new deficit record in 2026.
We are heading towards 7%/8% deficits in the coming years.
He thinks gold should be part of every portfolio. Central banks and other investors are preferring gold to fiat.
The Shiller P/E ratio is at the all-time dotcom bubble high. Stocks are not cheap.
The Shiller CAPE for the S&P has never predicted a 10-year positive return at this current level of 42.
He does not recommend any market cap weighted stock indexes.
This is an extremely concentrated stock market in the AI big 10 which means an extremely dangerous market.
The equal weighted S&P 500 has been outperforming for 1.25 years.
US stocks have stopped outperforming. They outperformed by a lot from 2010 till 2025 and have been going sideways since.
He has been investing in foreign equities, but now he's coming "close to home because he doesn't like the risk setup for markets".
The Dollar index (DXY) has been falling since 2024.
Jeffrey Gundlach and Felix Zulauf: The Second Inning of a Major Shift
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Felix Zulauf
Two main factors:
- change in geopolitical order (unipolar to multipolar order)
- economic changes
Wars and sanctions are inflationary.
Europe is in major decline. China is in a secular rise, but in a long deflationary cycle and trapped in it. US is doing very well, encouraged by easy money. Now dominated by the CAPEX cycle.
He thinks the US cycle will pop in the next 12 months.
The next downcycle will create lots of systemic problems. He thinks equities will top in Q3 2026 and early 2027.
It will be a bear market based on recession and valuation contraction.
He's bearish on the dollar for next year. Not this year (2026).
The quick fixes are accelerating. Eventually a lot of the debt will end up on the balance sheet of the central bank to keep the system functioning. We are far beyond the point where policy makers can do what they want to do.
CAPEX has expanded significantly from the hyperscalers. It's gone from 10% => 30% of sales. Semiconductor prices are rising rapidly.
Free cash flow is already going down - Oracle free cash flow is now negative.
Jeffrey Gundlach
He comes to the same conclusions as Felix more often than not.
We've had secularly declining interest rates for the last 40 years.
It's almost impossible for long term interest rates to decline given the debt of the US.
The interest expense on the debt is rising quickly. It's around $1.4 trillion now. Debt and interest rates are rising. Average interest rate was 2% and now it's around 4%. The interest expense problem during the next recession will get a lot worse.
During the tariff tantrum in 2025, the dollar went down, which is unusual. The dollar usually rises when the stock market goes down.
He expects something of a crisis in the long-term bond market. Couple options:
- One option is yield curve control.
- Restructure the debt (this is effectively a default). This would be extending the maturity and dropping the coupon. This would force us to stop running ridiculous budget deficits during times of so-called prosperity.
The cycle will be hard for lower credit worthy companies because existing bonds will roll off and they will need to issue higher yielding bonds.
He recommends a zero allocation to momentum or cap weighted stocks. He recommends emerging markets and local currencies. He also recommends this for equities.
The US investor needs to get away from all US. You can make money on foreign securities and currency translation.
He thinks gold will continue to be embraced as real money going forward. Central banks have clearly already started this.
The problem with the entitlement programs is on the doorstep. It used to be 2060, now it's 2032, and he is targeting 2028/2029. Just a couple of years. It will have to be addressed. The Social Security Administration is talking about cutting benefits now. This system used to work, but doesn't work anymore.
In the US, the reaction is more government programs. Look at Mamdani - he is rolling out more government.
The pushback against the AI data centers is large. They use massive amounts of energy and water.
Gundlach Unlocked: Positioning for Higher Rates and Persistent Inflation (June 12, 2026)
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Focuses on a DoubleLine asset allocation that's based on the current macro environment.
COVID money printing led to the surge in inflation as we came out of the pandemic.
Long term interest rates of developed countries have risen a lot since 2020. True in the UK, Australia, the US, Italy, etc.
Gundlach still believe investors should continue to avoid long term bonds.
2020 will be remembered as the secular bottom for interest rates. Short rates were at 0% and the long bond was at 1%.
The US personal savings rate is very low. It was up during COVID and now we are at one of the lowest savings rates of all time.
S&P CAPE is at an all time high.
Market concentration is almost at an all time high as well. Top biggest stocks are 41% of the market. This is a bad time to double down on a concentrated portfolio.
He thinks there will be an overbuild of data centers and that will be part of the downfall of the stock market.
Jeffrey Gundlach joins Scott Wapner on CNBC Overtime (May 6, 2022)
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Everyone knows that the tools of the Fed are very blunt.
Gundlach thinks we might be seeing the high in the dollar right now.
The Fed isn't going to raise rates 75bp. That was worrying the stock market, but Jay Powell made it clear that won't happen.
Foreign / European stock markets continue to be good performers.
Dollar has a triple top - 2017, 2020, 2022.
It's amazing the emerging markets equities are doing as well as they're doing given the carnage in the emerging markets bonds. If the dollar index falls below 102, he think that's the signal to buy emerging markets.
He still hasn't bought emerging market equities.
He likes non-US stocks, like Europe, and long term US bonds.
2 year Treasury is up 200bp year-to-date! It's incredible. It moved up 120bp over a 5 week time. This is what got the Fed messaging to change.
CPI is at 8.5%. Gundlach thinks that maybe we'll end the year with inflation lower than 6%. That's still a lot higher than today's interest rates.
The real question is if inflation will fall back to anywhere near 3%. This is what you need to believe that the Fed can pull off a soft landing.
Gundlach is opening a big museum in Buffalo.
Jeffrey Gundlach Gives Macro Overview (April 26, 2022)
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There was a tremendous amount of spending of durables during the pandemic lockdown. Gundlach thinks spending on durables will revert back to trend.
Labor force participation rate has not fully recovered.
Wage growth is accelerating across the different age groups.
Wage growth has closely mirrored the Fed Funds rate historically, but not this time. Wage growth has accelerated and the Fed has been slow to react.
Everyone expects a 50bp rate hike next week.
For the past 25 years, the Fed Funds rate was guided by the 2 year Treasury, until now. Fed is well behind the curve right now.
Yield curve is inverted, which is usually followed with a recession 12-18 months later. Gundlach expects a recession in 2023.
Gundlach thinks inflation will come down. Inflation is currently at 8.5%.
NASDAQ outperformed the S&P for a long time, hit a double top in 2020 and 2021. He thinks value is a much better investment than growth.
NASDAQ is currently in a bear market. It's down more than 20% from its top.
MSCI Europe is outperforming the S&P 500 this year.
Jeffrey Gundlach - Closing Bell Overtime (March 16, 2022)
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The Fed follows the 2 year Treasury.
The Fed is way behind. Gundlach thought Powell did an alright job this time.
For now, rates are still really accommodating and the Fed isn't shrinking the balance sheet.
The market will roll over once the Fed raises rates a few more times.
Median Fed official sees 6 more hikes, 7 overall in 2022.
The 2 year Treasury went to 175 basis points so no surprise, the Fed is going to 175 basis points as well.
We're starting this Fed hike cycle with a flat yield curve. Normally the yield curve is a lot more upward sloping when rates are being raised.
When the VIX gets above 35, you're supposed to get more bullish, not more bearish. The market was very oversold and commodities were very overbought.
He's guessing around high 5% inflation in 2022.
He doesn't see the Fed engineering a soft landing. The balance sheet tapering will be met with a significant headwind for the S&P 500.
He doesn't think the NASDAQ is the place to be. He thinks avoiding momentum / growth equities.
He also thinks investors should gradually start investing in emerging markets. He thinks they'll be a strong performer for a multi-year horizon.
He still hasn't bought emerging market equities. You need the dollar to go down for the emerging market trade to work. You want to buy the emerging market trade for your "grandkid's college education".
Long term we're still in a debt disaster situation and the only way out is to monetize or to default and this will always be the case, the mathematics just don't work.
We're paying of 168 trillion in unfunded liabilities with a $24 trillion nominal GDP. Numbers just don't add up.
This is coming in the next recession and that's when the dollar will go down.
The Fed, Interest Rates and Stagflation with Jeffrey Gundlach
We need to start admitting that we're running into a stagflation situation.
The Fed is in a really difficult situation. Price spikes require the Fed to be aggressive if they're serious at all about inflation.
We have a 1.7% 10-year yield and 7.5% inflation, really negative real interest rates.
Crude oil prices are skyrocketing.
Bloomberg commodity index is up over 100% over the last 18 months.
He thinks we'll be constantly underestimating inflation because we have all this stimulus that takes time to go through the system.
He thinks the recession risk is going up very significantly.
For the Fed to have any credibility, they need to raise interest rates.
This Ukrainian war situation means the Fed has to be more aggressive.
Fed is in a difficult situation. Stock market is down, inflation is up, and the economy is slowing down.
Gundlach is worried that we'll have another round of quantitative easing (money printing) if we have another recession.
We're doing it every time we run into an economic problem for a long time.
Another round of money printing would lead to a negative dollar trend.
The dollar index is up at a local high.
Gundlach does not think that the Fed will back off.
25bp rate hike is a guarantee in March (could be 50bp) and thinks there will be at least 4 rate hikes in 2022.
Everything is balanced on zero interest rates and quantitative easing of 120 billion per month.
The Fed just follows the 2 year Treasury.
There is going to be a recession at low interest rates so the only option the government will have is more deficit spending. Gundlach doesn't like dollar-based investments anymore.
Gundlach expects the Biden administration to respond with a huge stimulus package for the next recession. They always need to be bigger. It's going to be huge and it'll cause inflation.
We have $165 trillion dollars of unfunded liabilities in the United States. We have a $24 trillion dollar nominal GDP.
Two ways to deal with these huge unfunded liabilities:
- restructure them
- devalue them
The inflation numbers at the gas pump, on heating bills, and at the grocery store is going to be much larger than people are expecting.
Gundlach doesn't think neither Biden or Trump will win the election. There may be three candidates and no electoral college winner.
He thinks emerging markets will outperform US equities for some time in the future. He recommends dollar cost averaging from US stocks into emerging markets. Looking forward around 5 years for now.
US dollar reserve currency status is waning.
He thinks oil will top out at $200 a barrel.
Jeffrey Gundlach - CNBC Fast Money Halftime Report (February 11, 2022)
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Probability of 50bp rate hike is low per the yield curve.
The Fed just follows the bond market. The Fed just follows the 2 year Treasury market.
Gundlach would bet on a 25bp raise. He's expecting 5 rate hikes this year, taking the Fed Funds rate to 1.25%.
It's remarkable that the Fed is still doing quantitative easing as we're discussing rate hikes.
Gundlach thinks the Fed should have stopped QE a year ago. What we're seeing right now is a result of all the excessive stimulus.
We're at 7.5% inflation. Kind of feels like we might be going to double digits.
He's never seen the Fed engineer a soft landing before.
Gundlach thinks the Fed will have to raise rate more than the market thinks. They'll probably keep rising rates till something breaks.
We're starting to see some recessionary indicators.
Emerging markets are starting to outperform.
Inflation keeps surprising on the upside. The Fed is obviously behind the curve.
It's a tough environment. Nobody is making any money.
Median home price is up 30% over the last 2 years in the United States. Mortgage rates are now 4%.
Gundlach expects inflation to come down in the future, but not back to 2-3%.
They expect inflation of 5% in 2022.
Best performing sector this year is emerging market equities. Emerging market debt is doing poorly. European equities are also outperforming.
They also turned bullish on the UK a few weeks ago.
Credit spreads are quietly widening, more than people are aware of. Emerging market debt is down 5-6% in the first 5 weeks of the year.
When we take away the massively negative interest rates, there will be problems, cause that's what's priced in.
He hasn't bought emerging market equities yet, but he's getting close. It's OK to start averaging in.
US value is way cheap compared to US growth. Value right now is as cheap as it was in 1976 vs growth.
US was outperforming massively. Now it's slightly underperforming. Momentum has reversed. The relentless trend has shows signs of reversing.
The dollar is holding up and might push up a little higher, but once it reverses, and it will, you will really see the foreign outperformance.
Dollar trends tend to go for 8 years. Got 3-6 years of having a weak dollar. There will probably be a 4-5 year period of foreign outperformance.
There are going to be big moves when the outsized valuation discrepancies normalize.
He expects stability in the near term for US equities.
The widening credit spread will hurt the stock market, says DoubleLine Capital CEO (February 11, 2022)
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Credit spreads are quietly widening.
Emerging market debt is down pretty sharply. Down around 5-6% since the start of the year. Only 5 weeks.
We're at the prelude to panic for credit spreads right now. Credit markets first deteriorate very slowly, then all at once. We're in the slow deterioration part right now.
We all know that when credit spreads widen, you start having problems in equities.
He hasn't bought emerging market equities yet, but he's getting close. It's OK to start averaging in. The relative valuations of things are so out of whack.
US value is really cheap now vs US growth. You also see this in developed markets.
The relentless trend of US outperformance is already showing signs of reversing momentum.
Jeffrey Gundlach interview - Yahoo Finance 1-4-22
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When Fed buy bonds (quantitative easing), then yields go up.
Fed is talking about getting out of the quantitative easing business as early as March.
The yield curve is giving a recession signal. Yields are going up at the short end and down at the long end.
Gundlach's law of financial physics: the relationship between the Fed's balance sheet and the market cap of the S&P 500 index.
The valuation of stocks is also worrisome. The CAPE ratio is high. ROW CAPE is around half of the US CAPE.
Fed raising interest rates this year will lead to an economic slowdown.
Ever since the 1980s, every single economic slowdown has started with the Fed funds rate ever lower. 2.5% broke the economy back in 2018.
He thinks we'll see a CPI of more than 7% soon.
Our CPI would be 7.8% with the European CPI computation methodology.
Houses are surprisingly affordable right now because mortgage rates are so low.
By 2023, it seems pretty likely that we'll have a recession.
In 2018, the Fed stopped QE, started quantitative tightening, and started raising interest rates which cause an instantaneous bear market. This was "double barreled" tightening.
We might be getting to the end game. We're having to reverse at such low rates and the impacts of policy reversal are so powerful.
Michigan consumer confidence survey has really deteriorated. People were flush with government money and now they're not.
In the last 2 years, S&P is up 30% (from 2020 till end of 2021). If you take out the 5 FAANG stocks, the return is 0% (the S&P 495 if you will).
At some point in 2022, you should buy emerging markets because they are so cheap, but this recommendation isn't for the faint of heart. EM stocks are so cheap compared to US stocks by historical standards.
Gundlach thinks Social Security will go bust before 2030.
When it comes to productive capacity, Gundlach already thinks the Chinese economy is bigger than the US economy (that's not reflected in the way GDP is computed).
When you have the largest economy and the largest military, you have a seat at the table of being the world's reserve currency.
Gundlach thinks the US dollar reserve currency of the world is getting near an end game.
In the next recession, he expects the dollar to go down.
The dollar peaked out in 2017 and managed a double top.
He bought European stocks for the first time of 13 years in early 2021.
The next big move is to enter emerging markets.
He said maybe Bitcoin is a buy at $25,000. He doesn't own Bitcoin cause it's not in his DNA. He's not a momentum investor.
When it comes to art and real estate, you should really buy the highest quality. You want an asset that will appreciate steadily.
Jeffrey Gundlach, Andrew Hsu Webcast for DoubleLine Total Return: “In Our Time” - December 7, 2021
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Stock market rises during quantitative easing.
We're now moving towards tapering and eventually increasing interest rates. The market now thinks Jay Powell is more hawkish and will raise interest rates in 2022.
They expect inflation to remain elevated until the middle of next year at least.
Real interest rate on the Fed Funds is -614 basis points!
We're going to have to deal with the debt and the unfunded liabilities in our time.
What if we didn't do quantitative easing and just went negative on Fed Funds rate. What's the equivalent Fed Funds rate? According to the Atlanta Fed, the Fed Funds in this case is -800 basis points.
Consumer sentiment is falling. Consumers think it's a terrible time to buy a car (worst reading of all time). Consumers also think it's a bad time to buy a house, even though interest rates are really low.
The owners equivalent rent computation of the CPI leads to a lag effect. Gundlach expects that the rise in housing prices in 2021 will be reflected in the CPI in 2022.
Gundlach expects economic problems by the second half of 2022.
Consumers think now is a great time to find a quality job.
US equity market has really outperformed emerging market equities for the last 10 years. Massive S&P outperformance compared to certain emerging markets in 2021.
The dollar has strengthened, particularly against emerging market currencies.
Gundlach's long term view is strongly dollar bearish. He thinks the dollar will start going down in the second half of 2022, maybe 2023. The twin deficit problem of the US will cause it to go down.
When the dollar goes down, you will see tremendous outperformance by non-US stocks.
Once the dollar starts to slip, Gundlach thinks it'll take out the 2009 low.
The S&P / emerging markets comparative valuation hasn't looked like this till the run up to the dot com bubble. Emerging market CAPE ratio is less than half the US market & there have been times in the past when the emerging market CAPE ratio has been higher.
Shelter is a third of CPI. Shelter inflation has gone up (3.5%), but far below home price inflation by a lot of course.
CNBC Fast Money Halftime Report - October 21, 2022
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The Fed is starting to look seriously at tapering.
The market cap of the S&P 500 divided by the size of the Fed's balance sheet results in an almost constant value. It's a remarkably stable relationship. This makes the Fed tapering cautionary for stocks.
With the quantitative easing, America effectively has a -200bp Fed Funds rate.
Jay Powell is talking about taking away the quantitative easing in the middle of 2022. That's equivalent to a 200bp tightening of the Fed Funds rate.
During the corona crash, nominal GDP dropped by 3.5 trillion. It's since rebounded.
The national debt has increased by 6 trillion. Trade deficit has also increased.
We really haven't had any economic growth.
Doubleline thinks we will end the year with 5%+ inflation and doesn't think inflation will go below 4% any time in 2022.
Wages have exploded at the low end for workers from 16-24. They haven't risen for other workers.
Shelter, which is 1/3 of the CPI, is going to go up for sure.
Case-Shiller median home price is up 20% year-over-year in the United States.
Stocks are still not overvalued vs government bonds.
He recommends 12.5% cash and 25% stocks.
Likes European stocks because the dollar is going to go down and European stocks are really cheap compared to US stocks.
Dollar index is currently at 94. When it dips below 90, then it'll be a good time to buy emerging market equities.
When the dollar starts to go down, then dollar based investors will have outsized performance in emerging market equities.
Emerging market CAPE is half the US CAPE.
There are lots of time in history when the emerging market CAPE was higher than the US CAPE.
Commodities are really strong. Commodities could outperform significantly. 30-35% in commodities.
You should have 25% in long term bonds because there is a chance for long term debt deflation.
Down the Middle with DiMartino Booth - September 17, 2021
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Gundlach started reading 1984 by George Orwell and it's very difficult because it's too close to the bone. Just too predictive. He also re-read Looking Backward which was also predictive.
Seems like Operation Warp Speed was a big success. The vaccine rollout seems like a great action by the government, assuming there aren't unexpected long term effects of the vaccine.
COVID responses the government didn't do well:
- plexiglass barriers: it was clear that this virus was being spread through the air, not surfaces
- banning outdoor stuff
- government blindly spending, a large fraction of which was obviously corruption. California admits to having tens of billions unaccounted for.
Gundlach thinks we'll see a lot of evictions when the moratorium ends. A lot of people won't pay their back rent.
Home prices are a leading indicator of rent and home prices are up 23% YoY.
He's bullish on places that aren't currently hot.
Hot places: Austin, Nashville, Boise
Places Gundlach looked for property (cheaper cause they don't have herding mentality): New Mexico, Arizona, Wyoming, Colorado, Idaho. Ultimately ended up buying in Alabama.
Money give aways temporarily help the poorest, but help the uber-rich. The middle class gets poorer from money printing.
We had momentous shifts getting into these fiscal stimulus policies and transitioning out of them will not be smooth.
If you used housing prices in the CPI, then headline inflation would be 11%.
Campbell's Soup index is up to $1.00 from 0.85 a year ago.
Nobody can find workers anymore. In-N-Out Burger is paying $18 an hour.
Every time we have a recession for the last 25 years, we add a new weapon to the arsenal.
In the global financial crisis, the $85 billion for AIG was a lot. Now that's nothing.
The total government give aways are around $7 trillion, around 30% of GDP. We got around 2% real growth for all this stimulus.
The Fed was buying $100 billion of bonds some days, it was insane.
The Fed also had to bail out the corporate bond market cause it was completely dysfunctional. The amount of sellers was overwhelming the amount of buyers.
The bailouts are good in the short term, but maybe not in the long term. Credit cycles kill zombie companies. Getting rid of the inefficient companies is important for capitalism.
Gundlach is disgusted that the Fed is operating in shameless violation of the Fed Reserve Act of 1938.
You have negative real rates of returns right now in the junk bond market, which is probably a first.
Gundlach predicts a huge loss of democratic seats in the House of Representatives in 2022.
First stimulus was largely used to pay down debt and save. Second one was the same. Third one was spent.
Getting out of Afghanistan wasn't as easy as it seemed. Getting out of this monetary policy won't be easy either.
In April 2021, it was the peak of the housing market, and nothing was for sale. There were regions with three real estate agents per listing.
In April, he didn't see a single For Sale sign in Buffalo. In July, he saw a lot of For Sale signs.
Gundlach thinks the Fed is stealthily doing yield curve control.
Seems like they're trying to cap the long Treasury yield at 2%.
Inflation hasn't been transitory and it doesn't appear that it's going to be.
Without "forever stimulus", we will have a decrease in economic activity.
Homelessness is up and so is crime.
The spots that were supported by office crowds are done and that's part of the hollowing out of the middle.
The middle is going down the economic ladder.
Spontaneous collaboration and creativity is valuable. That's something we lose with work from home.
Business travel budgets will never go back to what they were.
A lot of jobs got automated as well.
Yellen publicly endorsed Jay Powell for renomination.
GDP has a lot to do with buying Chinese goods through Amazon, which isn't really US GDP.
Gundlach expects a big fall off in military enlistments.
70% of all casualties in the middle east were white middle class. If you're going to discourage them from enlisting in the military, then they won't enlist.
The US dollar has been the world's reserve currency cause the US is the world's biggest economy, reliable rule of law, and biggest military.
China's economy will outpace the US economy before 2030.
The Chinese GDP is real GDP, real production, They usually have a surplus. They have massive savings.
Given the twin deficit situation and the rise of China, it seems like the dollar is doomed.
Gundlach recently sold US stocks and bought European stocks.
August 23, 2021
The US has enjoyed the status of sole reserve currency for decades. We also have the biggest military in the world that goes hand in glove with having the reserve currency of the world.
The strongest economy in the world, by far, has been the Chinese economy.
The US economy has backed back with a lot of consumption, but a lot of the consumption is going to China.
The US is starting to fall behind in economic growth.
The Chinese economy is growing so rapidly that the estimates of when it'll be the biggest economy in the world keep getting pulled forward. 20 years ago they thought it was 2050, then 2040, and now the estimates are maybe 2028.
China has made no secret that they want to be a global player and have a seat at having the global reserve currency status. They've also made it clear they want a huge military. They have a culture of savings.
A lot of the US economic growth is the Fed printing money => the Treasury sending checks to citizens => Americans buying Chinese goods.
We're running our economy like we don't want to maintain global reserve currency status.
The dollar is so high because we are the global reserve currency of the world. It'll go down if that changes.
We take the reserve currency status for granted. Americans take a lot for granted now. We didn't use to take these things for granted in the past.
Gundlach thinks there is easily 25% downside in the US dollar.
Gundlach prefers stocks denominated in the Euro right now, maybe emerging markets starting in 2022.
Gundlach doesn't think the Fed is serious about raising short term interest rates as long as they're doing quantitative easing.
The Fed is clinging to the transitory inflation theory even though they've already been wrong. They initially thought 2-3 months, now they're thinking 6-9 months.
The Fed's tapering will certainly be damaging for the stock market.
Bond yield have counter intuitively fallen when the Fed has tapered historically.
The economic picture is really hard to define ever since the government got so involved in the economy.
Employers are finding a hard time finding workers which is no surprise because people are making the same or more money by not working.
When the stimulus programs end, there will be a significant amount of economic destruction.
The stimulus is what's driving all the economic growth.
Consumption isn't really GDP. GDP is production.
Once the stimulus start drying up, the party will be over, and we'll have to deal with a big hangover.
Misery index = inflation + unemployment
Misery index is currently at 11.3%.
Inflation is a big worry right now because consumers see it at the gas pump and the supermarket.
As long as stimulus goes on, the stock market can stay very overvalued
Link.
Gundlach thinks the Fed is manipulating interest rates at the long end of the yield curve because it seems like those rates can't get above 2%.
They've been extending the maturity of their quantitative easing, which is $80 billion of Treasuries a month.
Stocks are overvalued by almost all valuation metrics, but they're still cheap compared to US bonds.
As long as the stimulus goes on, the stock market can stay in highly overvalued territory.
The US equity market outperformed the European equity market for a decade, but they started moving in lock-step starting in 2020.
European equities are cheaper from a Shiller P/E/ perspective & a regular P/E perspective.
Recent dollar strengthening appears to be a counter trend move that may be nearing an end as we move into the end of 2021.
People that got stimulus payments are more likely to buy Bitcoin than gold. That might be why gold is mainly flat and Bitcoin is still on its wild roller coaster.
Bitcoin is a tool of speculation and it's a great trading vehicle if you want a lot of action.
Bitcoin is a much better vehicle for speculation than gold.
Emerging market equities are really cheap, but that's because COVID problem is more significant in emerging markets with mediocre healthcare systems.
Gundlach's #1 conviction over the next several years is that the dollar will go down.
He's already rotated into European equities and will aggressively rotate into emerging market equities, he just thinks it's too early for that right now.
Ultimately, he thinks gold will go a lot higher too, but it's in hibernation right now.
CNBC Fast Money Halftime Report (July 15, 2021)
We're at extremely high stock market valuations.
Stocks are still cheap to bonds because the bond yield is so incredibly low.
It's getting hard for the Fed to talk about the inflation situation as transitory.
Seems like the Fed wants the 30 year to be capped at 2%.
All the stimulus / free money should be coming to an end in the next few weeks and Gundlach just doesn't think that'll happen. He doesn't believe they can go cold turkey.
If stimulus continues at the current level, inflation won't go away, it might actually get worse in fact.
The strongest economy in the world is China. Stimulus helps China because we buy so many Chinese goods.
Some Fed officials are starting to admit that inflation will hang around longer than they originally expected.
The dollar has been reasonably strong.
Ultimately the size of our deficits (trade and budget) suggest that in the intermediate term, the dollar will fall pretty substantially.
In the near term, the dollar seems firm.
Commodities are way up this year, but gold is actually down this year.
Many pension plans have reached their best funding status since prior to the Global Financial Crisis.
CPI at 5.4% and the 10 year Treasury is at 1.3% - that's a -4% real interest rate.
Businesses will have to pay people more to get workers.
Wage inflation is hard to slow down once it starts.
Businesses might need to start compete with governments at the low-end level of wages for workers. This could lead to wage inflation.
It was only 3 months ago they were predicting a transitory inflation high of 3%.
Inflation is still accelerating. It's not decelerating yet. He still thinks the CPI will continue surprising on the upside. "The trend is your friend".
SPACs and meme stocks are fueled by government stimulus. Government stimulus causes spending and speculation.
The corporate bond market is the most overvalued that it's been for the last 20 years.
He's building a museum in Buffalo - the AKG art museum.
Buffalo is a booming city and it's unappreciated.
Bitcoin is a proxy for speculative fervor. He was bullish at the end of 2020.
He has a feeling you'll be able to buy it below $23,000 again.
He's never been long or short Bitcoin. It's just not for his risk tolerance. He'd be too worried to see it down or up 20% in a day.
Total Return Webcast (June 8, 2021)
Companies are having a hard time finding employees. There is clearly a shortage of workers.
The job openings index came out at a record high.
We'll see if the stimulus continues in September.
Nominal GDP is forecasted to be 10% for the year.
The current budget deficit is 16% which is the highest in the history of the United States. This understates the deficit cause it omits ~5% of spending that's not included even though it's a recurring expense every year.
If we didn't have deficit spending we would have no GDP growth in the United States.
The Fed's balance sheet has gone from 4 trillion => 8 trillion.
The unfunded liabilities are currently at $148 trillion (~6-7 times GDP).
The strongest economy in the world right now is China.
Consumer expectations for rising prices have grown significantly.
Food prices are up 6% YoY.
Used car prices have doubled over the last year.
Here is where Gundlach starts talking about the dollar.
Dollar index (DXY) is around 90.
He's neutral on the dollar in the short run, but very negative on the dollar in the long term.
The current account + budget balance is highly correlated with the direction of the dollar. Right now, the twin deficits are projecting that the dollar index should fall to below 70. This have meaningful ramifications for investment allocation and portfolio performance.
Home inventory is at record low levels. There are some areas of the country where there are multiple real estate agents per homes for sale. Some markets have 10x more real estate agents per home for sale!
The US equity market has outperformed the ROW very significantly since 2008.
Non-US stocks have been performing the same or better than US stocks recently.
He feels weird being positive on European stocks because he was negative on them for the last 12 years, since the founding of DoubleLine.
The NY & SF office occupancy went down by 80% and still hasn't gone back up.
They expect people to start going back to the office after the summer.
Top 5 states losing people:
- New Jersey
- New York
- Illinois
- Connecticut
- California
The anti-business states that have a high cost of living are not surprisingly losing the most people.
Huge downtrend in commodities from 2008 - 2020. Recent upswing from the low has been significant, but nothing close to reversing the trend.
The US dollar is highly correlated with commodity prices. When the commodity index goes up, the dollar goes down.
He ultimately thinks gold will go a lot higher as commodities rise.
Welcome and Fireside Chat (May 12, 2021)
Sam Garza is hosting the chat. He's been at Doubleline since the beginning.
Bond yields have come down pretty dramatically from the early 80s till now.
Bond yields were really high when he entered the profession. May 1984, the long bond yield was at 14% and the inflation rate was 4%. There was a 1000bp real yield on bonds. Nobody wanted them. They called bonds "certificates of confiscation" at the time.
Investors didn't think the 4% inflation rate was going to sustain in 1984. They thought inflation was going to come back for sure.
Back when Gundlach started in this business, people thought that bond yields in the single digits made no sense.
Real bond yield is now negative 250bp.
Fed & Treasury Secretary (Janet Yellen) say the inflation rate is transitory.
He has great respect for Stanley Druckenmiller.
We're in uncharted waters now in the same way we were in uncharted waters 1984.
The long bond bottomed at 1.00%.
The rate of change of society continues to accelerate.
Gundlach is sad that society has devolved to its current level. We'll need to find a new level place to stand and until then, there will be a lot of instability.
He's confident America will be in a great place several years from now.
He doesn't really know if this inflation is transitory and he doesn't think anyone knows.
In NY State, if you're not working, you can get $57,000 tax free.
56% of Federal spending is borrowed (lent to them from the Federal Reserve).
Median household income is very close to the amount of money the government will give you for not working.
If you want to believe that inflation is transitory, you have to believe that the government's policies are transitory, and it's getting hard to believe that.
If the government stops distributing free money, then the economy would collapse.
The CPI uses "owners equivalent rent", but if they used home prices instead, then the CPI would have been 8%.
He thinks Dogecoin & GameStop are obvious manias.
There is incredible inconsistency in the movement of the main stock market averages recently. The Dow is up and the Nasdaq is down. Or the S&P 500 is down and the Nasdaq is flat.
He is super bearish on the US dollar. "The dollar is doomed with the policies that are currently being enacted".
Trade deficit is expanding and the budget deficit is more than expanding - it's exploding. Both factors are quite negative for the dollar.
They have a more positive view on European stocks compared to American stocks since Doubleline was started 12 years ago.
The dollar has benefited from being the reserve currency of the world. It seems clear that China would like a seat at the table of being the world's reserve currency.
China's GDP will eclipse the US GDP in the next several years.
Saving is the national pastime in China. Borrowing & spending is the national pastime in the US.
There has been $6 trillion dollars of stimulus in the past year and most of it has been used to buy Chinese goods.
Gundlach has a good emotional memory. He's "made every mistake you can make in the investment industry, twice".
A good emotional & factual memory. You want to be able to say "I've seen this movie before".
The US will have to reset their economic system.
The societal institutions that were created in the aftermath of World War 2 are not working anymore.
Wealth inequality is the result of money printing. We're trying to use money printing to give money to the poor, but that doesn't work because it doesn't increase the productive capacity of the economy.
The good news is that these institutions will change.
We're going to get there, but we need to go through the transformative period.
He thinks commodity prices will go a lot higher, that's part of his negative dollar view.
We've inflated the value of financial assets so much that it's time for a trend change.
Gundlach's favorite investment right now is farmland. Farmland is essential to human existence.
Farmland has underperformed by a lot and has real value.
Gundlach thinks the stock market is doomed if the Fed starts tapering its balance sheet.
We are in the mirror image of where we were when Gundlach started in this business in 1984.
Yahoo Finance Interview (May 13, 2021)
When the Fed grows their balance sheet, the S&P 500 index goes up.
The CPI came in at 4.2% YoY.
About a third of last months personal disposable income was given by the government.
Government has a deficit that's 30% of GDP.
These have distorted the valuations of asset classes.
Home prices are up very strongly over the last 12 months. Some markets are up 30-40%.
Businesses can't fill job openings.
A certain fraction of people are making more money sitting at home, watching Netflix, than going to work.
The stimulus checks are starting to feel like they're not going away. Gavin Newsom announced $600 this week to people that are earning less than $75k a year.
In NY and California, a lot of people are getting $57k a year, tax free, for not working.
Gundlach bought a used truck with 8,000 miles on it, haha, dude is a billionaire.
Feels to him that the market started worrying about inflation this week. He thinks that inflation will still go up for the next few months. If it keeps going up in the fall, then people will really get worried.
The Fed is most content when the inflation rate is higher than all the interest rates, across the yield curve.
He thinks we already have UBI at this point.
Unemployment has been extended and extended and even increased.
People's behavior is already factoring in ongoing government assistance.
Bitcoin and the other cryptos have been objects of speculation. Playing with funny money. People feel like they're playing with the house's money (e.g. the money the government direct deposited in their bank account).
He was really bullish on Bitcoin in early 2020.
NASDAQ has been underperforming the S&P for quite some time now. This is a sign that some of the speculative fever is dissipating.
He's been very bullish on commodities, but might be overextended in the short run.
Thinks floating rate corporate debt is good, BKLN.
Thanks to valuation and longer term dollar view, he's bullish European equities. He's long term bearish on the dollar.
He likes Emerging Market equities longer term. He thinks they'll do well, but probably not this year. Emerging Markets are slower in rolling out the vaccine.
AKG Fundraiser (April 22, 2021)
Capital gains tax for those making more a million in California will be 57% with president Biden's new proposal.
% of personal income made up by government transfer payments went from 6% in the 60s to ~18% post the Global Financial Crisis to 27% in 2021.
US government is spending 8 trillion a year. 56% of that government spending is debt.
Unfunded liabilities are so huge that the US will not be able to pay them back, so they'll need to be restructured (a nice way to say defaulting).
The US trade balance is at -3.4%. That means we're importing more than we're exporting.
A lot of the stimulus money that's being paid is going to China. Americans are using stimulus payments to buy products from China.
The budget deficit is at 19% and that doesn't even count "one off items" that are really recurring expenses (like natural disasters and wars). The government chooses to mislead the population on how big the budget deficit really is. If you factor in these expenses, the deficit is really 23% of GDP.
Gundlach doesn't agree that the economy was great in 2019 / early 2020 (pre COVID). That economic growth was based on an increase in the deficit. Increasing the deficit to buy products from other countries is not real economic growth.
California has many characteristics that are similar to a developing nation. Lots of debt, terrible infrastructure, massive wealth inequality.
We still have millions of people that want to immigrate to the US. Part of this is because the US is giving so much away.
Twin deficits: budget deficit & trade deficit.
2011 - 2020: strengthening of the dollar & decreasing commodity prices.
Dollar started going down starting with the pandemic.
It's "virtually certain" that the dollar is going down.
Commodity prices have skyrocketed in the last year. It's very rare to see a linear upwards move in commodities over a sustained period.
He thinks the Fed wants headline inflation to rise. Doubleline thinks there is a chance to get the CPI year-over-year (YoY) up to 4% in the next few months (most recent reading was 2.6%).
NASDAQ 100 has relatively outperformed the broad S&P 500 index by 3x. There has been a huge outperformance of tech. The US stock market has vastly outperformed the rest of the world.
He believes a lot of the 10 year trends might start reversing and this might start happening:
- NASDAQ underperform S&P 500
- Dollar depreciating
- Commodities start rising
- European stock market outperforms US stock market
He's allocated from American stocks to European stocks at Doubleline for the first time in the history of the firm.
The technology sector is 6% of nominal GDP, 2% of employment, and 38% of the S&P 500 index (November-December 2020 numbers).
The tech sector is causing strains to our society with regards to inequality, data gathering, and political contributions.
Home prices are up 17% YoY. In some parts of Buffalo, they're up 30% YoY. It doesn't help the economy much if house prices are rising faster than inflation.
Cash out refinancing is one of the dumbest things you can do. It's basically like re-buying your house at a higher price.
People should start saving money before they spend. This concept is foreign to people that operate in the American economy.
Now is the time to own non-US stocks (based upon valuation & the direction of the dollar).