Taps Coogan – October 14th, 2020
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Jeffery Gundlach, founder of DoubleLine Capital, recently spoke about his concerns that the Fed may be forced into “unlimited” quantitative easing as organic demand for treasury debt diminishes and federal deficits keep getting bigger regardless of who wins in November.
In a nutshell, Mr. Gundlach believes that in the near term the dominating trend for the economy and markets remains deflationary as the labor market continues to struggle and consumer spending tightens. However, as times goes on, he worries that massively increasing federal deficits could lead to unlimited quantitative easing (even more unlimited than the current program).
As we noted here, the national debt increased by $4.23 trillion in Fiscal Year 2020 (which ended September 30th). With more multi-trillion dollar stimulus plans being put forward by both parties in Washington, multi-trillion dollar deficits are virtually guaranteed in FY 2021 as well.
With treasuries yielding next-to-nothing and every mainstream measure of inflation already back over 1% and some already nearing 2%, real treasury yields are already meaningfully negative. Layer on top of that Gundlach’s view that the dollar is “going down” because of its tight inverse correlation to growing deficits, and it’s hard to see anyone ponying up the additional trillions that will be needed to fund the government in coming years other than the Fed itself.
Enjoy the full discussion above.
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