Very long article, very interesting.............
Authored by Christopher Gisiger via The Market,
“No One Has Any Idea What Will Happen…”
Jeffrey Gundlach, CEO of the investment firm DoubleLine, warns that the stock market is ripe for another correction. He spots significant risks in the rapid growth of debt, the unpredictability of monetary policy and potential chaos in the 2020 presidential elections. An interview with the «Bond King».
When Jeffrey Gundlach speaks, investors around the world listen carefully. It’s hard to find anyone with a better sense for the global financial markets than the renowned CEO of the Los Angeles based investment firm DoubleLine. He also doesn’t shy away from expressing his unfiltered opinion when it comes to the general state of the economy and the political landscape.
«We live in a world where a lot of people are changing the rules», Mr. Gundlach says during a wide-ranging conversation at DoubleLine’s headquarters in mid-March. Most troublesome in his view is the rapid growth of debt, ever more extreme central bank interventions and the toxic political climate in the United States. He wouldn’t be surprised to see outbreaks of violence during the 2020 campaign, he states.
Against this backdrop, Mr. Gundlach says it’s very hard for investors to earn superior returns. According to this view, the S&P 500 is still in a bear market and will fall into negative territory by the end of summer, at the latest. In opposite to US stocks, he likes short-term Treasury bonds and emerging market equities, as he explains in this exclusive interview with the Swiss financial publication «The Market».
Mr. Gundlach, risk assets staged a remarkable comeback during the first months of the year. In the United States, the S&P 500 is close to its record high. What’s your take on the stock market?
It’s funny, people make these statements that the stock market is booming. In fact, it’s not really going anywhere. The S&P 500 is basically at the same level as it was back in the fall and at the same level as it was back in January 2018. So, it’s not doing really well. It went way down at the end of last year and then most of the way back up. But that’s not booming, that’s just volatile.
What does this reveal about the state of the financial markets in general?
Nothing is really changing. The yield on the ten-year treasury went up to 3.25%, but it didn’t last very long there. Then, it went down to 2.4% and now it’s back at 2.5%. Same thing with the Dollar. The Dollar has been reliably stable for basically four years. There was a little bit of variation, but the dollar index has been in the mid to top of the nineties most of the time. Also, gold hardly moves around. The only thing which is really changing is that the economy is slowing down, and the price of oil has been going up. But that’s about it.
So, what’s going to happen next?
I think US stocks are still in a bear market. It’s pretty typical for the starting point of a bear market to have a decent down move and then a nearly complete recovery. What many people don’t understand is that this kind of behavior is actually a really good selling opportunity. Nothing has a 100% probability, of course. But one thing which is important for success in investing is what I call trade location: putting the odds on your side. And, when you get this sort of a pattern, that’s a classic trade location for being a seller.
At the start of 2018, you predicted correctly that the S&P 500 will be negative at the end of the year. Where do you see US stocks at the end of 2019?
I don’t really know, probably unchanged. My highest conviction is an upside down «V» for the first six to eight months: A big move up which we’ve had. But now, given the setup in place, I feel like the short-term top is very close and maybe has already occurred. That’s why I think by the middle of the year and certainly by the end of the summer the S&P 500 will be negative year-to-date.
Once again, investors are betting on the central banks to bail them out when things get dicey. What are your thoughts on monetary policy ten years after the financial crisis?
The central banks have always been able to set short term interest rates. But now, they peg long-term interest rates as well at any level they want and that creates malinvestment all over the system. We’ve had years of negative interest rates in Europe and in Japan. Even ten-year bonds are yielding negative in Switzerland, and sometimes in Japan and Germany. When interest rates are negative, there is no reason to own these bonds whatsoever. That means money finds its way into speculation or real estate or venture capital development. The danger of this is that if the central banks ever stop trying to peg the rates, the consequences of all the malinvestment will be revealed.
Yet, the central bankers seem to be confident that their unconventional measures are working.
There is an old saying that someone has a tiger by the tail. In other words: they think they have the situation under control, but when they let go, the tiger will maul them and kill them. That’s the problem central bankers have gotten themselves into. There is almost no way out of the situation they have created. As these radical policies have incrementally been implemented, they open the door for acceptance of the next increment of radical policies.
What’s the next step in terms of these radical policies?
Here in the US, there is growing support for candidates trying to get the Democratic nomination by promising to give people money. One of them is Andrew Yang, a tech guy out of Silicon Valley. He wants to give everyone $1,000 a month. That’s $4 trillion a year. To which I say: why stop there? If $12,000 a year is so helpful, why not do $24,000? Or $24 million? Or $24 trillion? That would eliminate all wealth inequality. We could pay off the national debt and have every single person be equally wealthy. Of course, the illogic here is that giving people monetary computer credits doesn’t create anything. Everything is exactly the same except you now have stolen the wealth of everybody who saved and earned it and you have a depression-like anarchic system. It’s weird how people think that a little of this money for nothing is helpful, when anyone can see that taken to the extreme such measures would lead to an absolute implosion of the system, including Weimar Republic or Zimbabwe style inflation.
http://www.investmentwatchblog.com/gundlach-slams-mmt-sees-stocks-slumping-fears-violence-riots-during-2020-election/
Realist - Everybody in America is soft, and hates conflict. The cure for this, both in politics and social life, is the same -- hardihood. Give them raw truth.
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