Jeffrey Gundlach on Covid and Market Risks

In a recent interview with Yahoo Finance, DoubleLine Capital CEO Jeffrey Gundlach shared a host of insights on market movements, the coronavirus pandemic impact and the outlook for the U.S. economy.

Here are highlights from Gundlach’s comments:

  • The Fed has “pulled out all the stops” in its efforts to thwart the economic volatility resulting from the coronavirus pandemic. Quantitative easing, he said, has been “more in 3 or 4 weeks of the pandemic than it was in the wake of the financial crisis” of 2008-2009.
  • Economic activity in the second quarter will be “terrible” according to Gundlach, who credits Fed Chairman Jay Powell with “speaking strongly against negative interest rates.”
  • The run-off of some government assistance programs in the coming months could be detrimental for many Americans who “don’t have any savings and are in economic distress.”
  • The only way to be successful as a fixed income investor, according to Gundlach, is to focus on those areas that the Fed is not bolstering, “but this makes investors nervous because such areas have economic question marks around them—like  commercial mortgage-backed securities and credit card receivables debt.”
  • Regarding various predictions about the appearance of the economic recovery, Gundlach said a V-shaped recovery is “highly optimistic and I don’t even think really plausible.” He added, “You can’t have this type of hardship roll over the economy and nothing bad happen.”
  • The current environment is “fundamentally deflationary,” he argued, noting that companies may realize they can “right-size with the knowledge they’ve gained through this pandemic.” Specifically, he said, the shift to working from home may end up revealing a lack of productivity on the part of some employees—“I can envision another round of layoffs,” he said.
  • The economy will be unevenly affected by the pandemic, with big cities potentially suffering from an exodus to suburban areas. “States are in trouble,” Gundlach argued, adding, “Tax revenue has completely collapsed, and it is unlikely to improve.  They will be looking for more government bailouts.”
  • “The economy will feel the effects for some time to come. It’s unlikely that we’ll get back to our peak economic growth even in 2021,” Gundlach said.
  • As to whether the pandemic has exacerbated the inequalities inherent in our country’s social fabric, Gundlach responded, “Of course.” He said, “it’s awful how the investment in America is so uneven, how the quality of education is so uneven. It’s not being addressed.”
  • The upcoming presidential election adds another layer of complexity, according to Gundlach, who said that Biden has an “enthusiasm problem” and President Trump has “screwed up” with respect to the handling of the virus. Gundlach noted, “There’s a subtle difference between being a liar and an exaggerator.”
  • Gundlach warns that the dollar may start to weaken considerably, which could result in “purchasing power problems” and a decrease in the overall dominance of the U.S. markets.