Gundlach: The Next Recession Will Come with A Lot of Turmoil

In an interview with Yahoo Finance earlier this year, DoubleLine Capital CEO Jeffrey Gundlach shared insights about the markets and the economy.

Here are some highlights:

  • The Federal Reserve seems to have “lost its way” in terms of articulating a strategy of either easing or tightening.
  • The biggest risk on the radar, he said, is that when the next recession comes, “there’s going to be a lot of turmoil.” Specifically, he identified the corporate bond market as “extraordinarily leveraged” and cited a recent study that reflected how, if ratings were re-evaluated using only leverage ratios, “the investment grade bond market would be rated junk right now.”
  • Gundlach argued that the national debt presents an ongoing problem, noting that while our economy is growing, fiscal debt is increasing at a rate of over $1 trillion a year and has reached over $22 trillion.  “We have a growing economy,” he quipped, “but we’ve decided that debt doesn’t matter one bit.”
  • As far as the timing of the next recession, Gundlach explained that “the indicators we look at for recession aren’t even flashing full yellow yet. They’re more of a yellowish green.” Leading economic indicators, he pointed out, are still strong on a year-over-year basis, but noted that sentiment surveys are dipping a bit and that he’s “watching them carefully.”
  • Regarding possible legislation to limit share buybacks, Gundlach asserted, “Politicians telling corporation what they should do with their profits is disconcerting to say the least.”
  • Gundlach pointed out that the current level of taxation compared to GDP is approximately 15%, the lowest level since 1949. “So,” he argued, “we’ve decided to run a large government with huge deficits, and it seems that no one is interested in collected the taxes for that.”