Gundlach Says Avoid the Bond Market and Trump Will Win

Gundlach Says Avoid the Bond Market and Trump Will Win

DoubleLine Capital CEO Jeffrey Gundlach said in an August call with investors that Trump will beat Joe Biden and advised avoiding short- and long-term bonds. This according to an article in Advisor Perspectives.

Gundlach pointed out that emerging markets were extremely weak in March and early April, with poor liquidity, adding that the same was true of the Treasury market. “I have never seen what happened in terms of liquidity in the Treasury markets in March and April,” he declared, adding, “With the $1 trillion July deficit, we will have a deficit of 50% of GDP.” He predicts the 30-year yield to increase from its current level of 1.2% due  to the need for Treasury issuance, and argues that the fiscal stimulus enacted to bolster the economy during the pandemic cannot be unwound: “We need to default or restructure the unfunded liabilities.”

Gundlach expects rates to stay near zero for some time, and says that “edicts” by the government lead to risk in any sector of the bond market: “You have to go to the areas where the damage has been observed and the Fed has not manipulated the price.”

Inflation over the next three years depends on whether the federal debt is monetized, which Gundlach says could happen by its “declaring its liabilities are legal tender.” Despite the huge deficit, however, he contends that the economy is deflationary as companies will continue to reduce headcounts and footprints.

Gundlach recommends that investors section their portfolios into (1) a cash position to guard against deflation; (2) gold for long-term value; and (3) stocks, because they will perform well if there is inflation.

Regarding the upcoming election, Gundlach says, “There is a lot of time until the election and a lot of market volatility to come.” He predicts that Trump will win based in part on the fact that Biden can’t surpass a 50% favorable rating.