The latest ranting of Jeffrey Gundlach in the Twittersphere would make amusing reading if it were tweeted by a tinfoil hat.
But self-made billionaire investor Jeffrey Gundlach, founder of Doubleline, the world’s largest fixed-income fund with AUM of 140 billion US dollars is a big player in the big fixed-income pond, where most of the world’s pensions and sovereign wealth funds invest.
“self-made billionaire investor Jeffrey Gundlach, founder of Doubleline, is a big player in the big fixed-income pond”
WEALTH TRAINING COMPANY
The ranting of Jeffrey Gundlach makes no bones about the perilous state of the US public deficit and rising treasury yields
US 10 Year treasury yield is the yardstick that prices interest rates for domestic long-term medium loans for autos, business loans, and mortgages.
Moreover, the US dollar is the world’s reserve currency, and the 10-year yields impact the cost of servicing global debt, estimated to be 305 trillion US $ in 2022.
So when the 10Y T yields rise, emerging economies with weaker currencies sell more of their weaker currencies to buy appreciating US dollars.
US dollar squeeze leads to massive international loan defaults.
“US dollar squeeze leads to massive international loan defaults”
WEALTH TRAINING COMPANY
Jeffrey Gundlach’s ranting about unchecked US public spending is a cause for concern
“We’re told to settle in for funding a protracted, hundred billion-dollar-plus per year war halfway around the world.
While we have a massive deficit without such spending every single year.
Quoting Springsteen from nearly 50 years ago: “It’s a death trap, it’s a suicide rap,” he tweeted in March
Jeffrey Gundlach thinks yields are heading higher with supply exceeding treasury demand and the Fed stepping back from treasury purchases.
“Now three handle Treasury interest rates are an endangered species.
The last 3 handle yield standing is the long bond at 3.98% with a huge yield rise over the past month,” he wrote in March.
“if the economy is struggling with high rates and weak GDP growth, we will have the highest default rates of all time” – Jeffrey Gundlach
Take away from the latest ranting of Jeffrey Gundlach
“The cycle has been delayed,” he said, “but if the economy is struggling with high rates and weak GDP growth, we will have the highest default rates of all time,” added.
So with the Fed hiking in a bust, Jeffrey Gundlach is red-flagging a financial and economic calamity more severe than the Great Recession of 2008.
High-risk bonds with low credit ratings and high yields, junk bonds become worthless when the borrower defaults on yield payments.
This is like a replay of the US subprime mortgage crisis of 2008, Europe’s 2013 peripheral sovereign debt, and the 1997 Asian crisis financial contagion all rolled into a global debt blowup.
“The 2 Year UST yield chart looks like the top is not in place. Long rates remain in a multi-month range,” tweeted Jeffrey Gundlach on March 9.
2 Year UST yield is a leading indicator of the trajectory of Fed rates and the market is indicating Fed chair Powell to keep hiking rates in a recession. If investors are losing appetite for US paper, demand for treasuries falls pulling prices down and yields higher, which makes financing the ballooning US public deficit more expensive.
The latest ranting of Jeffrey Gundlach about social spending
“Where did all the Modern Monetary Theory crackpots go?
Social Security trustees admit the base case is for that scheme to run out of money in nine years. But that assumes no recession all that time, so maybe it’s more like five years. Without reforms, 20% of benefits or recipients must be cut by 2034 they say. That’s the best case, I say,” he wrote.