It’s that time of the month when Bond King Jeff Gundlach regales his subjects, and investors in his DoubleLine, with his latest monthly thoughts revealed in the periodic webcast for this Total Return Fund.
Since it’s been about three months since Gundlach’s March 9 webcast when he laid out his outlook for the year, here is a recap of what he said then courtesy of Bloomberg:
- Gundlach reiterated his bearish dollar call in the short-term, saying the greenback will be correlated to the budget. The Bloomberg Dollar Index has since declined 2.4% since he said that.
- He called the Nasdaq “dicey,” making a daring call that it could eventually drop as much as it did from 2000 to 2003 (after the dot-com bubble deflated.) He also said it was unlikely to outperform, which he ended up being right about. Since those comments, the Nasdaq Composite rallied 6% relative to the S&P 500’s 9% gain.
- He called for a modest or moderate decline for long bond yields, but held his call for the 10-year yield eventually hitting 3%. Since then, the 10-year yield has remained unchanged, but the yield on the 30-year declined by two basis points.
Bottom line, as Bloomberg grundglingly admits, “in the last three months, his call on the Nasdaq, dollar and long bond yields have all been correct.”
Looking ahead, fans of Gundlach will be curious to hear his updated thoughts on inflation and the stock market. In April, Gundlach said it wasn’t clear that U.S. inflation will be “transitory,” as Federal Reserve economists have been trying to convey this year (and as Deutsche Bank dramatically posited this week). “How do they know that when there’s plenty of money printing that’s been going on and we’ve seen commodity prices going up really massively,” he told BNN Bloomberg at the time.
Gundlach also added that the U.S. stock market was overvalued by virtually every important metric versus foreign markets such as those in Asia and Europe. He disclosed that he’d bought European stocks “literally for the first time in many years. I can’t remember the last time I did it. And that’s largely because I think the U.S. dollar is almost certain to decline over the intermediate to long term.”
With the Stoxx 600 trading at a record high, this was yet another correct call.
Focusing on the economy, in his last call Gundlach put an emphasis on the jobs market, where only idiots and Fed employees don’t realize that we are facing a historic crisis due to labor shortages resulting from Biden’s massive handouts. Gundlach is likely to comment on the last two payrolls reports, both of which were major disappointments. This will likely be key to his arguments on where markets are going next because he likes to dive into savings, income and spending trends, all of which are tied to the labor market.
With that in mind, here is Gundlach’s latest webcast “Clampdown” – click on the image below to get to the webcast page (registration required). Why the title? Because to Gundlach “clampdown” is another term for the continuing lockdowns the bond king is seeing in California.
Courtesy of Bloomberg, here is a breakdown of the key points touched on by Gundlach:
- Gundlach emphasized the labor shortage using a $500 McDonald’s signing bonus and the record JOLTS figure as evidence of dislocations. He also points to bottlenecks in housing, saying there are 10 times as many real estate agents as there are homes for sale.
- He reiterated his disdain for extreme government stimulus, saying a third of personal income lately has come from transfer payments, adding to “so much money sloshing around the system.” He added that the amount of U.S. spending has been helping the Chinese economy post its largest export-versus-import gap since 1997.
- Gundlach says inflation expectations among consumers aren’t unlike that of the 1970s and pointed out we haven’t seen PCE figures like now since the 1990s.
- On the dollar, Gundlach maintained his long-term bearish view saying the 89 level for DXY is support. He’s neutral short term. Gundlach turned positive on European stocks, saying U.S. outperformance since 2005 relative to the world is coming to an end. He added that commodities could be in for a breather given their linear move.
- He adds the economy could be in “reversal mode” should trends in disposable income see significant shifts. The comments came in context of stimulus and jobless benefits rolling off by September, the same time he expects much of the employed to physically return to office.
- Returning to the copper-gold ratio, he says we should be above 2.5% on the 10-year yield but can’t because we’re in a price-fixing rates market. He added gold won’t likely make much more progress but eventually will go higher in response to a weaker dollar.
- On retail investing, he says he hasn’t seen anything like it and that “you’re just playing with fire with that type of stuff.”
In his presentation, Gundlach starts off by talking about the soaring US GDP and budget deficit, and points out that the enabler of it all is the Fed and its balance sheet which at last check was just under $8 trillion.
Gundlach then discusses the topic of our April post pointing out the “stunning divergence” between soaring bank deposits (which banks may soon start charging money on, i.e., negative deposit rates) and shrinking bank loans (spoiler alert: the Fed is also responsible for this as we explained).
Gundlach then takes a quick look at the soaring gap between Chinese import and export growth, and points out that the spread is now the widest it has been since 1997. “We’ve really been helping out the Chinese economy,” Gundlach says. A lot of U.S. spending, held up by government assistance, is going on goods from China and Southeast Asia.
Gundlach then shifts to inflation, and points out that both core PCE and CPI are showing 3%+ prints (we’re at 3.58% in PCE and above 3% in core PCE, which we haven’t seen since the 1990s). This is in the context of the “transitory” discussion, where Gundlach says “How could i know” when asked rhetorically if inflation will be transitory or permanent.
Gundlach also asked how much resolve will the Fed have to not taper if there is a 5% print (we could see that on Thursday where the median CPI forecast is 4.7%.).
The bond king then shows one of our favorite charts – the near doubling of used car prices.
Gundlach then moved to markets, starting with the dollar where we are at “a pretty critical juncture.” Pointing to support at the 89 level, he said he is “neutral” on the dollar short term, and negative long term, as he says he has been for some time.
Gundlach then moves to a discussion of US states, and bashes New Jersey which is now pretty much officially the worst state in the
country, at least if measured by the exodus from the state
Moving away from FX, Gundlach next looks at U.S. equity prices versus the world, and says the U.S. has outperformed the rest of the world since 2005, but that hasn’t been rising as much lately. Briefly mentioning European stocks, Gundlach said he turned positive on European stocks, “which felt really weird — like when I turned positive on financial stocks last summer.” The reason for this: Gundlah has been negative on European stocks from the start of DoubleLine 12 years ago.
His full presentation is below: