Rehab: Gundlach Outlook on Stocks, Bonds, Commodities, Macro and the Fed

In his Sept. 15, 2022, webcast “Rehab,” titled in homage to the 2006 Amy Winehouse song, DoubleLine CEO Jeffrey Gundlach unpacks (0:51) a raft of data on the “credit-debit binge” of the U.S. economy and American consumers, and America’s need to go into economic rehab. A consequence of the U.S. addiction to debt, he says, is slowing economic growth. The free money printing accompanying that debt addiction, he later notes (12:48), “does not make the country richer. It makes the poor become impoverished; it makes the middle class become poor.”
On the state of the macroeconomy (9:13), Mr. Gundlach does not believe the U.S. has entered a recession. However, he warns the odds of recession in 2023 “are pretty high.” One signal of the advent of recession could come in December this year or January-February next year when (11:27) the U.S. unemployment rate could cross above its 12-month moving average. Observing the speed at which the federal funds target rate is rising toward the level of the two-year Treasury yield (17:28), Mr. Gundlach says, “The Fed is catching up. They’ve been tightening like crazy, and they’re going to continue to. And, unfortunately, I think the Fed is going to make their typical mistake of overtightening.”
In the wake of 1H 2022’s painfully steep rise in yields (27:57), Mr. Gundlach says, “the future outlook for bonds has not been this good in 10 years.” Portfolios with “a pretty low risk profile” can be easily put together to yield 8%. Given their respective valuations and the headwinds facing stocks, Mr. Gundlach also recommends selling stocks and buying opportunistic bonds. It is possible today, he says, to create an opportunistic bond portfolio yielding 12% with a capital gain potential of 5% to 15%.
Mr. Gundlach notes that U.S. stocks face a “double whammy” of rising real yields and slowing earnings. A number of long-term trends in the stock market (34:51) stopped two years ago and have since reversed. For example, the Nasdaq 100, a longtime outperformer, is lagging the S&P 500; European stocks, which lagged the S&P 500 for many years, now are outperforming. Mr. Gundlach also is interested in emerging markets equities, but the question is one of timing. “When the next recession comes, he says, “I’m strongly of the mind that emerging markets will outperform, but we need the dollar to break, and we don’t see that happening” as long as the Fed is tightening.
• This material contains the opinions of the manager as of the date it was recorded and such opinions are subject to change without notice.
• The material represents DoubleLine’s intellectual property. No portion of this presentation may be published, reproduced, transmitted, or rebroadcast in any media in any form without the express written permission of DoubleLine. To receive permission from DoubleLine, please contact [e-mail].
• The views and forecasts expressed in any materials on this website are as of the date indicated, are subject to change without notice, may not come to pass and do not represent a recommendation or offer of any particular security, strategy, or investment. DoubleLine has no obligation to provide revised assessments in the event of changed circumstances. There can be no assurance that the strategies described will achieve their objectives and goals.
• DoubleLine® is a registered trademark of DoubleLine Capital LP.
• ©2022 DoubleLine