Thread by @DLineCap

DoubleLine founder and CEO Jeffrey Gundlach presents "Convoy" Tuesday at 1:15pm PT.

Stay tuned here for live updates!

#macro #markets #inflation #geopolitics #Fed #Canada #RussiaUkraine #rates #recession #stocks #bonds #commodities

Jeffrey Gundlach: "Convoy" has two meanings. Inspired by Canadian truckers go angry enough to take things in their own hands.

Jeffrey Gundlach: The other meaning is the runaway convoy of the commodity market.

Jeffrey Gundlach: And now U.S. convoy showing solidarity with the Canadians, and the Russian army convoy mired in Ukraine.

Jeffrey Gundlach: And a horrific start to markets in 2022, including negative returns on nearly everything except real assets such as commodities.

Gundlach: Emerging market debt is a real debacle with Russian bonds being marked to zero.

Jeffrey Gundlach: We've seen interest rates rise this year. The two-year Treasury definitely leads the Fed.

It indicates 6 rate increases in the Fed Funds, but perhaps over a longer period than a year. Perhaps over 2 years.

Gundlach: The market is predicting a flat yield curve very soon.

Gundlach: We now have positive yields on the 10-year in Japan and the German bond at 11 basis points.

Gundlach: $VIX was pushing 40.

Looked like an exhaustion point this morning, but the stock market closed down moderately on the day.

Gundlach: These are Jimmy Carter-like negative interest rates.

Gundlach: -7.4% on the Fed Funds in terms of real rate (adjusted for inflation).

Gundlach: CPI is headed to 9% rate YoY, maybe 10%.

The inflation convoy keeps rolling along.

Gundlach: Real Fed Funds might go even more negative notwithstanding Fed hikes due to high inflation.

Fed Funds rate is highly correlated to wage growth.

Jeffrey Gundlach: The Fed seems to anticipate wage growth, but not this time.

Gundlach: The Fed has changed its modus operandi versus 40-year history

Gundlach: Durables, non-durables and services were in line with each other before the pandemic. Then government money got sprayed around. Durables went off trend and got so elevated that some of these orders have been pulled forward from the future.

Gundlach: Expect a lot of demand destruction.

We're starting to see consumer sentiment flagging.

Gundlach: 51% in USA Survey last week thinks U.S. economy is in a recession or a depression.

Gundlach: Mighty increase in the trade deficit after being stable for 8 years -- effect of all the money printing.

Jeffrey Gundlach: East Coast port congestion at a new high.

Another reason not to expect relaxation of inflation.

Gundlach: Recruitment of truck drivers also a problem.

Why would any 25-year-old start a career as a trucker with robotics coming to truck driving?

Gundlach: The Fed seems to zig when they should zag, pivoting between over-accommodation to over-tightening.

Gundlach: Zero interest rates and QE held the market returns.

Now we're about to play the movie that we watched in 2018.

Gundlach: Zero interest rates going away on the Fed funds and maybe even quantitative easing going away. We'll see happens. The markets are saying if you order the same cocktail, that's what shows up at the bar.

Gundlach: No jobs have been created above pre-pandemic peak.

Jeffrey Gundlach: Labor force participation rates are about 1.5% below before pandemic.

So much money was given out, some people have savings to live off.

Gundlach: The Russians have been steadfast for years there's no way they will have a NATO country on their Western border.

The U.S. taunted Moscow over Ukraine and then showed would not defend them.

Result: Russian invasion.

Gundlach: Dollar highly correlated to yield curve.

Also highly correlated to the twin deficits: budget deficit + trade deficit.

Gundlach: The dollar being this strong, but commodities so hot, means inflation is a wildfire.

Gundlach: S&P 500 has stopped outperforming EM stocks.

Gundlach: Given war on Europe's eastern front, S&P 500 outperforming European stocks.

Gundlach: Nasdaq 100 outperformed by the S&P 500 for 20 years.

Another trend that appears to be reversing.

Jeffrey Gundlach: The government's/Fed's involvement inflated the S&P 500 versus commodities. That's another trend that appears to be changing.

Gundlach: Bloomberg Commodity Index up already from middle of 2020, now going vertical.

Gundlach: A big up move in commodities, especially energy, can signal recession coming.

Gundlach: 7.5% headline CPI.

That's probably where we'll end the year.

Gundlach: We're seeing prints on CPI that make the Fed's 2% inflation target laughable.

Gundlach: Home prices remains 20% YoY on Case-Shiller index.

The Fed's shelter index in the CPI at 4% is well below home price and rental increases.

Gundlach: Export prices up 15% and import prices up 11%.

Gundlach: So a lot reasons to believe that inflation is becoming embedded in the economy.

Jeffrey Gundlach: The evidence of higher wage inflation is everywhere.

Gundlach: Wage growth is higher than 30-year fixed rate mortgage. Usually, it has been below.

This inversion supports the housing market.

Gundlach: Inflation is a global phenomenon.

Every region of the world is registering inflation above the zero line.

Gundlach: The increase in the two year Treasury year has been virtually as steep as the decline during the lockdown.

Gundlach: Why do we need the Fed?

Why not save the money spent on the Fed's 800 economists and just follow the yield on the two-year Treasury?

Gundlach: Bond market pricing says the yield curve will be flat 2%. However, if the bond market is wrong, the curve will peak at 150 basis points.

Gundlach: Copper-gold ratio says the 10-year Treasury yield should be 250 basis points.

Gundlach: 2s10s yield curve inversion is 4 for 4 telegraphing recessions.

Jeffrey Gundlach: Spread-widening in IG and HY corporate bonds in the face of higher Treasury yields means a real deterioration of financial conditions.

Gundlach: Default rates are non-existent.

Refinancing allowed corporate balance sheets to be in good shape.

Gundlach: Spreads on Agency mortgage-backed securities have widened. From negative in March 2021.

70-80 basis points of widening. Back to about fair value.

Gundlach: An inverted yield curve -- 2s to 10s, 5s to 30s -- would make a very strong case for recession.

Gundlach: Is gold a buy now?

Doesn't think so, although can't rule it out going to a new high.

Prefers broad commodities over gold at this point.

Gundlach: I think the commodity cycle has turned, and it has turned with a vengeance.

Gundlach: Is the Fed going to one (hike) and done?

Understand the sentiment, but the Fed can't stop with one hike.

Gundlach: We need a new system.

A new economic system.

A new tax system.

Political systems.

The next recession is going to lay all that bare.

Gundlach: Guesses inflation will go higher from here but end of the year trails off with lower activity.

Gundlach: No plans to move to Florida.

Reports to that effect are erroneous.

Gundlach: I hope we don't get pulled into this war, but it seems like incrementally we're being dragged in that direction.

Jeffrey Gundlach: That wraps up this presentation. Good luck the rest of the year and thanks for your support of DoubleLine.

Bye for now.