Jeffrey Gundlach gives his latest insights in his webcast, entitled Cave People, the name inspired by the philosopher Plato’s, “Allegory of the Cave.”
DoubleLine CEO Jeffrey Gundlach’s second podcast of 2024, March, reiterates his gloomy outlook, highlighting the spiralling federal debt and the recessionary storm clouds gathering.
Jeffrey Gundlach Cave People webcast is a wake-up call for people and investors to seek the truth and not settle for what they see manufactured by the media as reality and truth.
The cave represents a false sense of security, “Allegory of the Cave,” where humans unconsciously become prisoners permanently attached to their digital devices and virtual reality goggles. Jeffrey Gundlach cave people do not think critically and are oblivious to reality, non-truth seekers are prisoners of virtual reality and fantasy.
“Jeffrey Gundlach Cave People webcast is a wake-up call for people and investors to seek the truth”
WEALTH TRAINING COMPANY
Jeffrey Gundlach gives his latest insights on the debt crisis
He noted that spiralling public deficit is a problem, particularly during a relatively high-interest rate environment.
From the 1970s to the 2020s, the employment rate and public deficit were correlated, with both rates moving in harmony.
“Lower levels of unemployment meant the public deficit was lower, and high unemployment, higher public deficit, and it made sense,” said Jeffrey Gundlach.
He noted in a recession, tax receipts go down, and federal transfer payments go up.
“From 2015 to 2020, unemployment fell before the lockdowns, and the deficit went up by a large percentage of GDP,” he said.
“The unemployment rate and the public deficit are rising today,” he added.
In other words, the public deficit keeps rising, irrespective of the unemployment rate.
“The unemployment rate and the public deficit are rising today”
JEFFREY GUNDLACH
“In a recession, the public deficit goes up an average of 5% of GDP over a multi-decade time frame,” said Jeffrey Gundlach.
The Government is forecasting the public deficit will go up by 6.1% of GDP in the next recession of 2024 or 2025.
Jeffrey Gundlach thinks the public deficit could likely be 10 or 12 % of GDP.
Jeffrey Gundlach gives his latest insights into the trillions of dollars of debt rollover
He noted that there are 17 trillion dollars of treasury bonds maturity in the next three years and that debt will need to be re-issued at a much higher interest rate.
“Federal interest expenses to revenue are skyrocketing, and it looks like it is going to an all-time high thanks to all this debt and bonds maturing,” he said.
“We will probably take out the 1991 high of 18% this year, 2024,” he added.
“Consumers are also starting to show some signs of stress. We see a sizable increase in credit card usage, which is usual because people are short on money. Buy now, pay later” – Jeffrey Gundlach
He thinks skyrocketing interest payments on the nation’s debt is why the Fed could be more anxious to cut interest rates.
“Some of the five-year treasury bonds issued in 2019 are going to be rolling over at a 400 basis point interest rate increase if interest rates stay where they are,” said Jeffrey Gundlach.
“This is turning into a critical problem,” he added.
Jeffrey Gundlach gives his latest insights into economic storm clouds gathering
Flipping excitedly through a raft of charts, he disproves the Goldilocks landing scenario.
Starting with the inverted bond yield curve chart, he noted the duration of time that the 10s and 2s Treasury bond yield curve inversion is looking like the early 80s.
Consumer expectations are turning pessimistic, noted Jeffrey Gundlach.
Moving to the employment chart, he noted that everything has started to flip.
“When you cross over the one-year moving average in a meaningful and convincing way, it is usually the start of a rapid rise in unemployment, and that just happened,” he said.
He noted that full-time employment has fallen three months in a row.
Averaged weekly hours worked in manufacturing are also sliding quickly.
“First, they cut the hours, then they cut the bodies, and that is how the economic cycle works,” he said.
“Historically, when you have this kind of decline, one should be looking for a rising layoff rate,” he added.
“Consumers are also starting to show some signs of stress. We see a sizable increase in credit card usage, which is usual because people are short on money. Buy now, pay later,” he said.
But he noted the interest rate on credit cards is up 600 basis points, which amplifies the Fed fund rate hikes. “The current 23% interest rate on credit cards is a punishing interest rate level,” he said.
“I am fearful that the credit card situation may lead to a pullback in consumer spending” – Jeffrey Gundlach
Americans owe $1.13 trillion on their credit cards, according to a new report from the Federal Reserve Bank of New York.
The first wave of credit card delinquencies is already hitting, as millions of loans fall behind in interest payments on their credit card debts.
Millennials are worst impacted by credit card debts.
“I am fearful that the credit card situation may lead to a pullback in consumer spending,” he said.
Jeffrey Gundlach gives his latest insights on inflation
He noted that Headline inflation remains sticky due to rising oil prices.
“When oil goes up by 10 dollars it adds, with a lag of about four-tenths to the headline CPI. Under the current framework, we will be lucky to get below 3% sometime in the middle of this year,” he said.
He noted that the purchasing power of the dollar eroded by 14% since the lockdowns, which is why people are feeling inflation.
“You have lost a lot of purchasing power, and if we have another four years of this, you’ll lose 40% of your purchasing power,” he said.
He sees commodity prices indicating low global growth, with many countries in recession. “India is booming, but globally, there is not a lot of economic growth,” he said.
“Treasury bonds 30 years if you own them at their high point back in 2020, you are down by 46%.
Bank loan borrowers who were borrowing at 3% three years ago have to borrow at a higher interest rate of 12%. Loans are repriced every 90 days. They will have to keep paying the high-interest rates until the Fed cuts rates. So that will be the mechanism by which unemployment will rise, crushing demand,” he said.
He recommends steering clear from urban office concentration.
