In a webcast earlier this month, DoubleLine CEO Jeffrey Gundlach shared his thoughts on “distortions brought on by the lockdown and stimulus.” This according to a recent article in Financial Advisor.
As the country emerges from lockdowns, Gundlach said some economists are projecting GPD growth of 10.4% this year. But he raised concerns about the ramifications of multiple stimulus bills, arguing that deficit spending is at about 16.2%, a level not seen since World War II and is probably understated—the “real number exceeds 20%,” according to Gundlach.
The outlook for a stimulus-free economy is not pretty, he asserted: “If we took the deficit to zero, GDP growth would be minus 10%.” He added that government spending represents 35% to 40% of total GDP, a level approaching that of public sector-heavy European economies. Here in the U.S., he noted that even though many job openings remain unfilled, Americans “collectively are rolling in the stimulus bucks.”
Those strong consumer cash positions raise the prospect of runaway inflation akin to what we saw in the Jimmy Carter era, Gundlach noted, when “people rushed to buy goods in anticipation their prices would be much higher in a year.” He added that DoubleLine’s models show inflation in the high 4% level, while others show it exceeding 5%. Although Fed officials say they see inflation as “transitory,” Gundlach argues, “no one knows.”