Jeffrey Gundlach, chief investment officer of DoubleLine Capital, warns that stocks are in a bear market while U.S. debt has climbed to an alarming level.
He also sees a better than 50 percent chance that there will be an increase in U.S. tariffs on China.
Wall Street’s main indexes tumbled 2 percent on Tuesday, as the latest turn in trade negotiations with China stoked global growth worries and kept investors away from risky assets.
“I think we are going to keep seeing more tension,” around trade issues, Gundlach said in an interview on CNBC Tuesday.
“I think the 25% tariff bump is better than 50% chance. The market obviously does not want to see increased tariffs, so it’s been kind of reacting to that.”
China’s top trade negotiator Liu He will travel to the U.S. this week for high-stakes talks as prospects dimmed for maintaining a fragile truce after President Donald Trump threatened to raise tariffs on Chinese goods starting Friday.
"Both the premier of China and the president of the United States want to come across that they prevailed and didn’t give in,” Gundlach said.
“I think you’ve got an irresistible force meeting an immovable object,” Gundlach added.
If tariffs increase as scheduled on Friday, Gundlach thinks the U.S. stock market will sell-off further.
“It’s already happening, I think. The market obviously doesn’t want increased tariffs, so it’s been kind of reacting to that,” Gundlach said.
Asked if he believes U.S. stocks are in a bear market: “Of course we are,” Gundlach said. The U.S. stock market “has gone nowhere in 15 months,” he said.
“I think that we’re in a late cycle and I think the market can only be termed by the way I look at evolution of market prices as a bear market,” Gundlach said.
"People talk about this 20 percent thing, and I mean, I'm OK with that if people want to go there in a conversation. But a bear market is really about cycles and manias, and then things one-by-one rolling over and the market getting narrower and narrower. And I think all of that has been happening in about an 18-month time period," he said.
"The economy is in such bad shape to withstand a downturn. Again, the national debt is exploding while we're having some of the best GDP year-over-year that we've had in recent years. Right? So the economy is not in any kind of condition for the government to come to the rescue other than really wickedly extraordinary policies a la the ECB and the BOJ," he said.
DoubleLine Capital oversees more than $130 billion in assets under management.
Other comments by Gundlach included:
- The U.S. debt and deficit are “out of control” because they’re growing during a strong economy, leaving little room to maneuver. "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 – the national debt increased by over 6 percent of GDP in 2018. Nominal GDP rose by 5.1 So, if we're growing debt so much during a 5 percent nominal GDP period and you ticked off some economic facts are reasonably reassuring, what's going to happen when we turn down?"
- Fed’s Jerome Powell, during his last press conference, “looked scared.” The U.S. economy is “rudderless,” Gundlach said. "Jay Powell's most recent press conference looked lost to me. Or maybe the right word is scared. Scared to say anything. So, we're kind of rudderless now I think in terms of the Fed. They just want things to be okay and to hold together and they don't want to say anything or change their rhetoric or scare anybody."
Material from Bloomberg and Reuters has been used in this report.
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