Taps Coogan – February 7th, 2024

Often right, occasionally wrong, always interesting, Jeffery Gundlach – founder of DoubleLine Capital, recently spoke with CNBC after the Fed’s most recent FOMC meeting to discuss how he viewed the meeting and how he is positioning his portfolio:

Gundlach has struck a unusually tolerant view of Powell’s policy stance for the last few quarters while reiterating that the Fed Funds Rate is probably two or three quarter-point hikes too tight (we agree). That sentiment continues, though Gundlach expects a recession this year, pointing to softening labor market data (the interview was before the better-than-expected January jobs number came out) and declares that he is in “defensive mode” and likes Treasuries and cash.

With regards to the exploding federal deficit, he notes:

“I don’t think that the 2024 election will be about the deficit. I do think the 2028 presidential election will be about nothing but the deficit because the interest expense is going straight up. We’ve added $400-$500 billion of interest expense per year already and we have tons bonds, like $36 trillion of Treasury bonds, rolling off in the next 36 months. If we’re ‘higher for longer’ everyday the interest expense is going up. We’re getting to the point where we can’t deny it any longer. Medicare admits it will be broke in 2030. Using CBO assumptions, Social Security admits it will be broke in 2032… but those assumptions are overly optimistic…If you tweak those assumptions, it’s more likely that Medicare and Social Security go bankrupt in the 2020s… This is going to be a really big issue. I think this is going to be the defining issue of the next six years…”

Of note, he is also bullish on India, calling it “the strongest economy in the world,” a sentiment that we’ve been repeating over and over for years. He calls the Indian market his “number one recommendation for 2024.” While that comes after Indian markets have already moved up quite substantially in the last year, India nonetheless represents what China was in the 1990s – but even better. Unlike China, India is not a communist dictatorship and is already laying the groundwork for the democratic-rule-of-law institutions that will be required to make the eventual transition beyond middle-income (where China is likely to remain stuck).