Jeffrey Gundlach latest views were brought to light in a recent interview.
“The biggest concern investors should have in 2022 is the Fed,” said Jeffrey Gundlach
“There has been an undeniable activity between the Fed activity quantitative easing and the Fed fund rate,” he said.
Jeffrey Gundlach noted that the Fed’s bond-buying has every time supported equity markets.
But Jeffrey Gundlach latest views contradict the theory that when the Fed buys bonds their corresponding yields go down. So, a high bond price leads to a lower yield since the bond price and the yield move in opposite directions.
“The biggest concern investors should have in 2022 is the Fed”
Jeffrey Gundlach noted that when the Fed buys bonds the yields go up.
“A lot of people think that should not happen. But it has happened without exception,” said Jeffrey Gundlach.
In other words, the Fed buys bonds when markets are illiquid, thereby preventing a crash, but the bond price continues to fall.
Jeffrey Gundlach latest views that the Fed’s talk about raising interest rates and getting out of the quantitative easing business as early as March will dominate much of the investors’ sentiment in 2022. Jeffrey Gundlach thinks the Fed’s quantitative tightening could be in haste.
Jeffrey Gundlach latest view is that transition to a normalization policy could shock markets
“We have gone from completely Dovish profile at the Fed with zero interest rate for years with quantitative easing as far as the eye can see at 120 billion per month and suddenly when yields start to rise in the two years and five years the Fed has always to follow the bond market,” said Jeffrey Gundlach.
“A lot of people think that should not happen. But it has happened without exception”
“So we now have the highest 2 year yields of the past year, we have the highest three-year yields, we have a tie on the five-year yield,” said Jeffrey Gundlach.
Here is Jeffrey Gundlach latest views on what rising treasury yields signify
“What is happening is that the yield curve is sending a bona fide recessionary signal. You have interest rates going up in the short end and going down in the long end.
This is what investors have to watch out for,” he said.
What are Jeffrey Gundlach latest views on US stock valuations?
“The valuations of stocks are also worrisome. In the US if you look at the CAPE ratio, one of my favorites that is very elevated is around 35 or so,” he said.
Jeffrey Gundlach thinks that Fed tightening will cause headwinds for investors.
“Almost everything looks like the 70s” – Jeffrey Gundlach
“Bond market is already suggesting an economic slowdown,” he warned.
Ever since the rate peaked in the 80s every single economic downturn has begun with the Fed funds level ever lower. It always breaks the economy at a low level.,” he said.
“So the one that broke the economy in 2018 was about two or two and a half percent,” he added.
Jeffrey Gundlach thinks in this Fed tightening cycle yields curve may flatten significantly below 2.
Jeffrey Gundlach latest views explain negative real yields
Ever since the 30-year treasury yield kissed, two and a half percent it seems like the Fed has been defending the long end of the bond market. It hasn’t closed above 2 percent in a long time,” said Jeffrey Gundlach
Here comes the bit that most bond investors suspected.
“Every day you get yield 2.02 and 2.03, and low and behold something magic happens, and it ends the day at 1.98. It almost looks like yield fixing going on, which is one way of explaining negative real yields,” said Jeffrey Gundlach.
Jeffrey Gundlach noted that yields are negative similar to the Jimmy Carter period.
Referring to the 70s Jeffrey Gundlach latest views are put forward in a compelling narrative
“Almost everything looks like the 70s,” said Jeffrey Gundlach.
Jeffrey Gundlach noted striking similarities such as higher inflation levels, lower real yields, geopolitical problems, and a melase feeling in the White House. “A lot of things are the same, and yet interest rates were super high then now they are super low,” he said.
“So we have the same condition, but now we have very negative real yields, with the basic Fed fund rate is negative 6.8 percent right now. Because fed funds are at zero and CPI is at 6.8%,” he said.
“So we are starting to get back into the same mode that we need to fight inflation, but we are starting at such different levels in terms of economic valuation stocks versus GDP Buffet indicator, which is elevated,” said Jeffrey Gundlach
“We are finally getting to the end game when forced to respond at such low levels” – Ray Dalio
Despite US stock’s high valuation, Jeffrey Gundlach thinks stocks are cheap in relation to bonds
“But what is odd is that stocks are cheaper than bonds thanks to fed meddling,” he said.
“It is a tough choice for investors because stocks PE is in a sort of danger zone yet bonds have these widely negative yields and inflation is going to continue to go up at least in the next couple of months,” he added.
Jeffrey Gundlach thinks the trajectory of CPI is dependent on government policy.
He thinks the Fed will raise rates just four times and will see a plethora of recessionary signals “it is a non zero probability that you get a recession in the second part of 2022. Consumer confidence index has fallen off a cliff,” he said.
Jeffrey Gundlach latest view is that the Fed will reverse again
“We are finally getting to the end game when forced to respond at such low levels,” he said.
Although he thinks China’s economy will soon be larger than the US and is in a better fiscal situation, he is a China bear because he does not trust US-China relations.
But we are surprised that Jeffrey Gundlach did not cite that China is the second-largest buyer of US treasuries in the world, which increased $1.065 trillion, from $1.047 trillion in September 2021.
If money talks then that says the bilateral relationship is sugar hard.
“What happens when you have the largest economy and military? I think you deserve a seat at the table of reserve currency, and I think that has been a goal of China for a long time,” he said.
Jeffrey Gundlach thinks US dollar reserve currency situation is near the end game. “Next bailout will take the US dollar down,” he said.
He thinks emerging markets are undervalued and that Bitcoin is for momentum investors.