Jeffrey Gundlach Introduces Anti-Recession DoubleLine Umbrella
The King of Bonds Jeffrey Gundlach, founder and CEO of the American money management company DoubleLine, is preparing to face a US recession, in a hard landing style, in a context in which Jerome Powell’s Fed is ready to announce new increases in anti-inflation rates, as emerges from the minutes just released.
In the United States, too, the debate remains heated between those who argue that the economy made in the USA is far too solid, and that therefore it is necessary for the Fed to proceed with further monetary tightening, and those who instead issue a warning about the risk of recession. Recession risk that the latest macro data will also have removed, for now, but not eliminated. This is what the King of Bonds Gundlach believes that, in an interview with Yahoo Finance, does not hesitate to express himself with these words, and which also presents the umbrella under which to protect himself:
“Here at DoubleLine we are preparing to face a hard landing”, underlines the CEO of the group, referring to the situation characterized by very weak – if not negative – economic growth, caused by aggressive monetary tightening by the Fed and stubbornly high inflation.
Gundlach: We need an anti-recession umbrella with the Fed
How is DoubleLine activating? By increasing exposure to US government bonds, Treasuriesperceived as relatively safe.
Gundlach also points out his thoughts on that distinction that is often made tra soft landing e hard landing. The point, specifies the King of Bonds, is not so much in the difference between the two scenarios, but the fact that the markets are destined to have to digest a significant economic slowdown, and that they are not equipped, at the moment, to face this prospect.
“People always ask me this question: how hard will the recession be. But it doesn’t matter, as long as we’re talking about a recession. And it is necessary to have some form of protection. In any case, an umbrella is needed“.
That said, DoubleLine is scaring a hard landing scenario, if you really have to choose.
Jeffrey Gundlach also confirms that he belongs to that category of economists and strategists according to whom the inversion of the yield curve in the 2-10 year segment it is an indicator parameter of the advent of a recession.
“Absolutely”answers the question on the predictive value or otherwise of the phenomenon.
Minute Fed: what emerged
It should be noted that the US Treasury yield curve inverted for the first time since 2019 already at the end of March 2022, sounding the recession alert. And that there is talk of an inversion of the yield curve, when the yields of Treasuries with long-term maturities fall to a value lower than that of the yields of the rates of Treasuries with short maturities, the latter usually more sensitive to policy announcements monetary.
In these cases, reference is also made to so-called recession spreador, in the case of the United States, the spread between 2-year and 10-year rates.
“When (the curve) reverses, you need to be alert,” warned Bond King Jeffrey Gundlach again.
The Fed has so far raised rates, from March 2022 until last February 1, by as much as 450 basis points, or 4.5%, to try to defuse the jump in US inflation.
The result is that inflation growth has tested its peak, but continues to remain far too strong, well above the 2% target established by the central bank, as shown by the latest US data. Of course, compared to the previous peaks, the rate of increases has slowed down, but not as expected, as emerged for example from theproducer price index, but also fromUS consumer price index, both relating to the month of January.
Yesterday evening the minutes of the Fed led by Jerome Powell were released, relating to the last meeting of the FOMC of January 31-February 1, which ended with the announcement of a 25 point rise in US interest rates basis, to the range between 4.5% and 4.75%, a record since October 2007.
Everything has emerged from the minutes the US central bank’s intention to continue raising rates. Not only that: if it is true that “all the FOMC officials agreed to raise rates by 25 basis points, some of them were in favor of raising rates by 50 basis points”to try to make the battle against US inflation more effective.
The prospects are not comforting. According to the king of Bonds Gundlach, in a situation of constant monetary tightening,“we could attend something really painful and interesting in the arc of the next recessionwhether it is a severe recession or not”.