Thread by @DLineCap

DoubleLine CEO Jeffrey Gundlach presents "Rehab."

Tune in Thursday, 9/15/2022 at 1:15 pm PT | 4:15 pm ET.

#macro #markets #commodities #Fed #inflation #growth #rates #stocks #bonds #EM #Europe #USD #FOMC #Powell #recession

.@DLineCap CEO Jeffrey Gundlach: I think the U.S. needs to go into rehab

Gundlach: There are 1,250 IRS agents who are not paying taxes. 87,00 new IRS agents coming.

Gundlach: Most Americans think the country is on the wrong track

Jeffrey Gundlach: 21% think America's on the right direction. That's the same percentage of people who believe Elvis is alive and living on Mars.

Gundlach: One problem is tremendous disagreement in many parts of the political system

Gundlach: The budget deficit continues to be a big driver of the economy.

Gundlach: look at student loan to income ratios, 31% in 2007. 54% most recent level.

Jeffrey Gundlach: The stimulus has slowed down from 2020, tremendous jump in excess savings. Suddenly households are drawing down. the negative savings is due to inflation.

Gundlach: Wal-Mart reports rise in the use of credit cards for groceries. This is a very alarming problem with revolving credit going up.

We need the economy to get off this credit-debt binge.

Gundlach: Delinquency rates rising on consumer loans. These trends look pretty powerful. looks like this began a year ago.

Gundlach: 2-year Treasury pushing toward 4%.

Gundlach: Stocks no longer undervalued versus bonds

Gundlach: We're not really in a recession now. Not quite there.

Gundlach: Gas prices up substantially.

Gundlach: The leading economic indicators now 0.0% YoY.

Jeffrey Gundlach: odds of a recession in 2023 are pretty high

Gundlach: The unemployment rate is a pretty good indicator of the front end of of a recession.

Gundlach: Moving average at 4.07 of unemployment. In a few months, the actual rate could undercut the moving average. That's a recessionary signal.

Gundlach: Free money from the country doesn't make the country richer. It downgrades the standard of living of almost everyone except for the those in power.

Gundlach: Consumer sentiment is in freefall.

Jeffrey Gundlach: consumer durable spending is way above trend due to crazy stimulus.

Gundlach: Nondurable also above trend.

All of that above trendline spending will be reversed.

Gundlach: so there's no apparent area of pent-up consumer demand to help the economy going forward

Gundlach: monthly mortgage payments 2 years ago was $1,000 median. Now $1,816 with a doubling of mortgage rates.

Jeffrey Gundlach: I've been saying for a long time that the Fed does nothing but follows the 2-year Treasury yield. Now they are catching up the Fed Funds rate to that level. Unfortunately, looks like the Fed might overtighten.

Gundlach: As in the last hiking cycle in 2018, the 2-year Treasury will be higher than the ultimately terminal Fed Funds rate.

Gundlach: The bond market prices in a peak 4.4% fed funds in 2023, but I think the Fed Funds will not go that high.

Gundlach: The Fed is getting aggressive to the point that they oversteer the economy into the dumpster

Gundlach: I am negative on the dollar when the next recession comes. In the meantime, the dollar is going up.

Jeffrey Gundlach: We're like the unfortunate Amy Winehouse, the U.S. won't go to rehab.

Gundlach: Export and import prices are not adjusted. More of a real measure of inflation. Coming down, but still way above CPI.

Gundlach: job switchers hanging in with the CPI, not so much job stayers.

Gundlach: CPI understates inflation in the cost of housing.

Gundlach: Commodities have been correcting, flirting around the 200-day moving average, probably not headed much lower.

Gundlach: Gold uninteresting right now. Not negative on gold though.

Gundlach: Bloomberg Aggregate Bond Index at 4.25%. The rise in yields has been painful for bond investors.

Gundlach: But thanks to the rise in yields, plenty of bonds at discounts. It's very easy to put together a low-risk bond portfolio that yields at 8%. an opportunistic portfolio can be put together to yield 12%.

.@DLineCap CEO Jeffrey Gundlach: Opportunities more exciting in the bond market than at any time in the last 10 years.

Gundlach: Aggregate yield has been a pretty good predictor of forward returns over the next 3 years.

Gundlach: Copper-gold ratio has been declining.

Says fair value for 10-year treasury is 2%.

Gundlach: I'm favorable on long term Treasuries. Allows you to own credit.

Gundlach: U.S. real yields have moved up a lot. This is a big problem for valuations of stocks.

Gundlach: Some people are predicting no earning growth next year. My opinion is earnings will probably slow down. With real yields going up, that's a double wammy.

Gundlach: Bear market in stocks is probably not over.

Gundlach: The Nasdaq 100 stopped outperforming two years ago.

Gundlach: S&P 500 will probably be better investment than the Nasdaq for years to come.

Gundlach: MSCI Europe seems to be outperforming the S&P 500

Jeffrey Gundlach: When the next recession comes, I'm strongly of the mind that EM stocks will outperform the S&P 500, but we need to wait for the recession and for the dollar to weaken.

Gundlach: This year has been the worst year for the Bloomberg U.S. Aggregate Bond index return by a mile.

Gundlach: The liquidity in the Treasury market is terrible. Investors should pay attention to this.

Gundlach: Strangely, high yield has outperformed investment grade, notwithstanding the negative stocks. IG underperforming HY due to duration.

Gundlach: Opportunities in the bond market to earn capital gain returns as well as income.

Gundlach: Uptick in the bank loan default rate. I'm not predicting a huge problem, but looks like we're at the beginning of increases in default rates.

Gundlach: Mortgage-backed securities duration has widened out a lot, at the point of the maximum extension.

Gundlach: Agency mortgage spreads today went to a 10-year high. So they are looking attractive.

Gundlach: Quantitative tightening is just getting started. The Fed's balance sheet has hardly dropped at all.

Gundlach: Double-barreled QT at the end 2018 shocked the stock market, forced the Fed to reverse course.

Gundlach: I think the Fed will probably raise the fed funds to 4%, the two-year Treasury is almost there.

The Fed might tighten above that.

Gundlach: In the aftermath of COVID, my suspicion is the Fed really wanted to push the CPI to 4%.

Jeffrey Gundlach: Where did it go to? 9%.

Overshot by 500 basis points.

Gundlach: Economist consensus and the bond market both think the CPI slope will be even steeper on the way back down to 2% and stay there exactly.

That's ridiculous.

Gundlach: Who is to say they don't overshoot on the downside? It's possible that they produce deflation.

Gundlach: Believe you want to own Treasuries with credit to cover a deflationary scenario.

Gundlach concludes: Thank you for your support and bye for now.