Few market commentators can make forecasts that stretch five or six years out that are worth listening to. But bond guru Jeffrey Gundlach has the track record that makes his opinion notable — and he says that 2020 will be a time of turmoil.
“A lot of things seem to be pointing to the year 2020 as an interesting timeframe,” he told the Financial Times. Gundlach thinks that at that point we’ll be seeing a wall of high-yield debt that companies need to refinance; soaring federal deficits caused by baby-boomers draining social security and healthcare funds; aging populations in China and other emerging markets; and — here’s the biggie — more quantitative easing.
“It seems like one of the consequences of this zero interest rate policy is you’ve pushed out the problem of refinancing, of rolling over, but you’ve really compounded the magnitude of it and it seems to be focused around the 2020s,” he says.
As for more near-term issues, Gundlach thinks economic growth figures were pushed higher by inventory building in the second quarter. “I would still be surprised to see full-year 2014 GDP exceed 2 per cent,” he said.
But housing isn’t an area about which Gundlach is worried. His firm is close to signing a deal with a mortgage originator, who will offer loans that do not qualify for government guarantees and which can be bundled into securities with a higher yield, FT reports. “I think that people who are looking for the catalyst for the next mortgage meltdown are fighting the last war,” Gundlach said, “I think the chance of that is really almost infinitesimal.”