Submitted by Taps Coogan on the 8th of May 2019 to The Sounding Line.
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Jeff Gundlach, founder of DoubleLine Capital, recently spoke with CNBC about his concerns that US-China trade negotiations will not manage to avoid the imposition of higher tariffs on Friday. He also warns of indicators pointing to the risk of a recession before the 2020 election and the unsustainable trajectory of the US national debt.
Some excerpts from Jeff Gundlach:
“I think you’ve got an irresistible force meeting an immovable object where both the Premier in China and the President of the United States want to come across that they prevailed and didn’t give in, which means to me that I think we are going to keep seeing more tension, and I think that the 25% tariff bump is a better than 50% chance.”
“… The market obviously doesn’t want increased tariffs. So, it’s been kind of reacting to that. But we have to remember that the market hasn’t gone anywhere in 15 months… People keep acting like this is some sort of a locomotive that’s chugging along but the NYSE Composite Index, which to me is the most important one because it’s the biggest, it peaked in January of 2018 and then it couldn’t quite make it back to that peak in October, and now it couldn’t quite get back to the October level, and now it’s rolling over again… I think this had been a process of trying to digest… Fed policy pivots, which have created a lot of volatility, and the fact that the global economy has slowed down in a really major way since the peak period of late 2017, early 2018… A few months ago I was saying that there are absolutely no indicators of a recession on the horizon, and now we have some that don’t suggest imminent problems but that do suggest that it’s not a lock at all, like it used to look like, that we are going to get to the Presidential election without economic weakness and concern.”
“…The spread between the 5-Year US treasury and the 30-Year US treasury, which hardly anyone pays attention to, has been steepening the whole time. When the stock market cratered, the 30-Year treasury bond widened to the 5-Year. When the stock market roared back, the 30-Year continued to steepen versus the 5-Year. Why is that…? I think the reason is that people are starting to realize that the… deficit and the national debt are totally out of control. Last year, 2018, the national debt, forget about the deficit which isn’t really the amount of true borrowing…, increased by over 6% of GDP. Nominal GDP rose by 5.1%. What that means… is if we hadn’t increased the national debt in 2018, GDP nominally would have been negative. And in fact, that’s the truth for the last three years and the last five years, that the national debt growth is responsible for all of the growth in GDP. So if we are growing debt so much in a 5% normal GDP period…, what’s going to happen when we turn down? … In the next recession what is going to happen to the amount of debt and is the Fed going to allow interest rates to rise at the long end, which is what’s going to happen unless they go and emulate the ECB and the JGB (BOJ)…”
As we noted yesterday, US government interest expenditures, including state and local governments, are now 93% of total military spending, including off-budget spending.
There is much more to the two segment interview, so enjoy it above.
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