Submitted by Taps Coogan on the 12th of March 2019 to The Sounding Line.

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Jeff Gundlach, founder of DoubleLine Capital, recently spoke with Real Vision about the historic Fed reversal from hawkish to dovish following the December market route, as well as concerns about the swelling federal deficit.

 

Jeff Gundlach:

“Powell was thought to be different than the other Fed Chairs. He was supposed to be non-academic. He doesn’t have a PhD in Economics and I think the word was ‘pragmatic’ for Jay Powell and then he showed up after the rate hike at the press conference and he sounded very different than being pragmatic.  He basically said, we’re on autopilot with quantitative tightening, which is the last thing a falling stock market needs to hear… And then he also used the word ‘models’ a lot, ‘inputs to the models,’ and all of a sudden he sounded as wonky as any Fed Chair ever gets and detached from being pragmatic, and the market didn’t like that at all… and that scared him and we had a complete 180 from the pragmatic Powell to the ‘Powell Put,’ which wasn’t supposed to exist at all. And I don’t think I can remember a rhetorical shift so rapid and so major from a Fed Chair, because just a few days later, with the stock market in free-fall, it’s all about patience and ‘I didn’t really say ever we were closed minded on QT,’ and we trotted out many Fed officials to go along with this, and then there was that fateful afternoon were he was on stage with Bernanke and Yellen and it was one big dove-fest…”

“…The economic data continues to deteriorate. We’re starting to see reversals in unemployment claims now rising on a four-week moving average basis. We’re starting to see earnings estimates collapsing, margin estimates collapsing, sales dropping. You see housing is negative… None of these things are at the ‘alarm bell recession,’ but they are getting fairly close… We were miles away from anything resembling a caution signal on the economy back in September, but there has been pretty much an across the board deterioration…”

“In 2018 for the calendar year, forget about the fiscal (year)…, the national debt increased by $1.48 trillion. Now that’s about 7% of GDP, and this is when we are supposedly in a good economy with 3% real GDP, 5.3% nominal through September… You have to ask yourself, are we really growing at all in an organic way, because the most recent data point on GDP  is… less than the growth in the debt. So, if we hadn’t grown the debt by 7% of GDP, I guess we’d have a negative economy right now. And so what happens… during the next recession, which may be coming, again, no alarm bells blaring right now. How big is the deficit going to be? Foreigners are not buying our debt anymore. The Fed, for now, is not buying our debt… Will the deficit be $4 trillion? $3 trillion…? Usually the deficit-to-GDP ratio goes up 4% from the good times to the recession. Does that mean we are going to go to 11%? Maybe it will be worse than that”

There is much more to the interview, so enjoy it above

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