Tags: gundlach | debt | real | turmoil

Gundlach: US Debt Woes to Spark 'Real Turmoil' in Next Decade


By    |   Monday, 09 December 2019 05:41 PM

Investment guru Jeffrey Gundlach warns that debt-market trouble will eventually fuel “real turmoil” in the next decade.

Instead of the roaring economy seen in the 1920s, Gundlach the opposite because of the U.S. debt bomb.

"It's pretty interesting because the 20s in the 20th century, the 20s were super boom times. And weirdly, I think the 20s this time will be very much different than that, with real turmoil," the CEO of DoubleLine Capital recently told Yahoo Finance.

Gundlach warned that the 2020s will see "the crescendo" of many unattractive trends that have been talked about for years, but finally come home to roost.

"[We're] going to have to face Social Security, health care, all of these things, deficit-based spending — all of that is going to have to be resolved during the 2020s because the compounding curve is just so bad," he said.

According to the Congressional Budget Office, the federal deficit will top $1 trillion every year beginning in 2022.

“I think it's foolish to believe that there will be no economic downturn for the next ten years considering where we are right now,” he said.

Gundlach believes the next crisis will be more severe — and it will be centered around corporate credit, where companies are holding record levels of debt on their books.

When the next downturn hits, companies won't address their leverage ratios, and there will be "en masse downgradings" in the investment-grade corporate market, resulting in "significant divestment of a lot of naive money,” he warned.

Gundlach warned investors that their "corporate bond exposure should be at absolute minimum levels right now.”

Gundlach isn't alone in his warnings of a debt disaster.

Newsmax Finance Insider Trevor Gerszt recently explained that most people realize that the amount of debt in existence worldwide is enormous, but how enormous isn’t immediately obvious.

"Many people may even labor under the erroneous impression that the debt bubble has improved since the financial crisis, since surely businesses and individuals learned their lesson from that crisis. But the reality is that the debt bubble isn’t just bad, it continues to get worse and worse all the time," he recently wrote for Newsmax Finance.

By the end of this year, the total amount of global debt is expected to hit $255 trillion, a $12 trillion increase from last year, and a significant increase from the roughly $200 billion in global debt at the end of 2009. That $255 trillion represents over $33,000 in debt for every single person on the planet. That’s $132,000 in debt for a family of four in the United States, $132,000 for a family of four in Japan, and $132,000 for a family of four in sub-Saharan Africa.

"That $255 trillion also equates to over 330% of world GDP, in other words almost three-and-a-half times the world’s total annual economic output. If you think that a debt that large will be paid off anytime soon, or paid off at all, you might want to think again," he explained.

"World debt levels have become so large, particularly among governments, that no one can realistically expect them to be paid off."

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Investment guru Jeffrey Gundlach warns that debt-market trouble will eventually fuel “real turmoil” in the next decade.
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Monday, 09 December 2019 05:41 PM
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