Submitted by Taps Coogan on the 28th of April 2020 to The Sounding Line.

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Jeffery Gundlach, founder of DoubleLine Capital, recently spoke with CNBC about his outlook for markets and the economy. He emphasizes that we are witnessing a transformative event and that the pain is not over for markets which he fears will trade to new lows.

 

Some excerpts from Jeffrey Gundlach:

“The markets pretty much recovered… because of the Fed on April 9th in particular, taking the bold step of pretty blatantly violating the Federal Reserve Act of 1913… The Federal Reserve cannot buy corporate bonds. Now, I know that they’re not technically buying corporate bonds but they are doing it clearly by slight of hand…”

“All of these markets are looking quite tired these days and the sentiment shifts should have investors concerned. I was watching a segment on CNBC earlier this morning that was talking about how people are looking for aggressive opportunities. The time for aggressive opportunities was March 23rd not April 27th…”

“I would caution investors to be wary of panaceas like this where ‘test test test’ is going to be the answer to all of our problems and ‘open the economy.’ Those are two catch phrases that you hear a lot of and certainly those things are better than not having those things. But, I think many people don’t understand the wide ranging ramifications of what’s going on. …The CARES Act with its PPP aspect of payroll check protection, it actually gives many people a lot more money for not working than what they had when they were at their job… That just makes the cost structure of reopening these businesses just really prohibitive… A lot of small businesses barely make it week to week prior the Covid-19 and if you increase their cost structure, in terms of getting employees back by 25%, it becomes impossible for them… We are not out of the woods…”

“I think we take out the (March) low. I think a retest of the low was very plausible… I think that people just don’t understand the magnitude of the… social unease that’s going to happen… We’ve lost every job that we’ve created since the bottom in 2009. Every single job is gone… That’s just incredible… In a certain sense we never really left the Global Financial Crisis, if you think about it. Our unemployment rate is now worse. The policies that we put in place, zero interest rates and massive quantitative easing, well we’re back at them again… Are we ever going to leave these policies?”

“I’ve seen numerous people come on CNBC over the course of the last year and point out that a large fraction of Americans don’t have a rainy day fund, that they can’t absorb an unexpected expense of a few hundred dollars. Well, we have now seen that happen and I have got to believe that this traumatized an awful lot of people and maybe we’ll actually get back to a strange quaint notion called saving and acts like buying things after you save the money for them…”

“As I’ve been talking about over and over again, there was no economic growth in 2019. It was all debt. The national debt grew more than nominal GDP.. One other thing a lot of people don’t understand is that the 2019 economic growth was basically all consumption… 90% of the economic growth in 2019 was consumption. Usually consumption is around 70% of GDP… What happens now if… consumption drops?”

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

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