Jeffrey Gundlach lays out his market view for 2024 in his usual analytical and informative style, flipping eagerly through a raft of charts backing his forecasts.
With decades of experience in bond investing and a 70 per cent accuracy forecast rate, Jeffrey Gundlach, billionaire bond investor and founder of Doubleline, is worth the time.
Jeffrey Gundlach starts his presentation with a brief review of 2023, then shifts to the year ahead.
With the title, “Just Markets 2024; “Too much to say, Jeffrey Gundlach lays out his market view, so get comfortable because it’s a rough one.
“Jeffrey Gundlach lays out his market view”
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“What is rough? The recession indicators look rough, and we see the yield curve de-inverting,” he said.
Jeffrey Gundlach sees this indicator as a high probability of a 2024 imminent recession.
He noted that despite the money supply M2 shrinking in 2023, the recession didn’t show up because of all the stimulus in 2021.
But in 2024, Jeffrey Gundlach believes the unemployment rate will go vertical as the trend of laying off workers goes viral.
“A large money management firm recently confirmed that they are laying off 3% of their workforce.
Pizza Hut has laid off thousands of people, and once you get robots delivering, you won’t need any of these delivery people,” he said.
Historically, unemployment spikes during a recession, but this economic trough could see higher structural unemployment due to four revolution technologies. Jeffrey Gundlach is forecasting unemployment to go up dramatically. “It is likely to do so as the latest cost-saving technologies are implemented to maintain profit margins,” he said.
Reading between the lines, this is likely to widen the wealth gap and further stress social cohesion, which could lead to political extremism as opportunistic politicians seek to exploit discord.
“The unemployment rate is forecasted to cross the 36 months moving average,” he said.
Jeffrey Gundlach noted that COVID lockdowns have distorted indicators, making them less reliable over the last three years, but he thinks this is starting to fade.
“Pizza Hut has laid off thousands of people”
JEFFREY GUNDLACH
Jeffrey Gundlach lays out his market view regarding the unemployment rate and the public deficit
“Since 2015, even though unemployment has been low.
Yet the budget deficit has not gone down, in fact, it is higher than in 2015 when unemployment was a lot higher,” he said.
“The deficit is not going away, and maybe the Fed made the great pivot in November because they realised that 5.25% filtering through the economy is not affordable” – Jeffrey Gundlach
Relatively elevated interest rates and record debts; Jeffrey Gundlach lays out his market view
You can borrow an infinite amount of money when interest rates are at zero. Moreover, when the debt matured, the amount could be rolled over at near-zero interest rates.
But the changing dynamics of relatively high-interest rates and record debts is a high-octane environment, one spark away from a catastrophe
“It is causing huge stress to our economic system,” he said.
The spiralling deficit and generational high interest rates will be a big issue in 2024, particularly, if the economy falls into recession, he thinks.
We have not seen those interest rates fully filtered through the system.
Indeed, a supernova of debts, approximately one trillion dollars of commercial loans, and business loans maturing in March, and those debt obligations will be reset at higher rates. But that is just domestic debt, global dollar-denominated debts are far greater.
In other words, the supernova debt tsunami 2024, is scheduled to wreak havoc on the global economy in March, less than eight weeks. The 2023 five-bank meltdown could be a prelude to what lies ahead if the Fed remains tighter for longer in 2024.
“The deficit is not going away, and maybe the Fed made the great pivot in November because they realised that 5.25% filtering through the economy is not affordable.
They know the arithmetic of higher interest rates rolling off into a stock of debt,” he said.
“17 trillion dollars of Treasuries rolling off in the next 36 months that’s about half of the national debt, a lot of those bonds have interest rates that are 1% or lower,” he added.
Sub note to Jeffrey Gundlach lays out his market view; debts and rising conflicts.
The Empire’s Hercules heel is its debts, and rivals to the throne are watching with glee.
Weakness invites aggression and wars on all continents.
“We are still running a 2 trillion dollars national deficit, interest rates are between 4 and 5.5% today, but that is higher than 3.17%, and we are still rolling over national debts at ever-increasing interest rates.
That probably has some role to play in the Fed pivot,” he said.
“The best predictor for forecasting the Fed’s interest rates trajectory is to follow the 2-year treasury yields” – Jeffrey Gundlach
Inflation and QE Jeffrey Gundlach lays out his market view for 2024
Jeffrey Gundlach thinks the Fed will revert to QE in the next recession, which could be an inflationary problem.
He thinks the bond rally could continue into 2024, with the 10-year treasury falling to approximately 3.3%.
He doesn’t think interest rates will go as low as previous recessions because of inflation.
He would stay with value over growth stocks trade in 2024.
Magnificent Seven has gone dead sideways since July, and he thinks a trend change is coming.
“The rest of the world did almost the same as the US stocks, so we are not the world leader any longer, and that might have something to do with all our mismanaging our fiscal situation and the crazy policies we have been putting in place in recent years,” he said.
Here is the takeaway for Jeffrey Gundlach, lays out his market view for 2024
“The best predictor for forecasting the Fed’s interest rates trajectory is to follow the 2-year treasury yields.
The two-year yields tend to piece through Fed fund rates just before the Fed announces cuts,” he said.
“It doesn’t work every time, but it worked with the Fed hiking cycle, it worked with the 2018 2019 cutting cycle,·” he added.
Jeffrey Gundlach notes that the 2-year treasury signals that the Fed will cut rates in 2024.
“It might be wrong, something could change, but the Fed’s base case is that the Fed will cut rates,” he said.
