Tags: gundlach | recession | warnings | economy

Gundlach: Some Recession Warning Signs 'Flashing Yellow'

By    |   Friday, 15 February 2019 01:41 PM

Investment guru Jeffrey Gundlach warns that while a recession isn’t on the horizon, some warning signs are starting to “flash yellow.”

"I think right now it's too early to say that we have the necessary conditions in place for a recession on the foreseeable horizon, which is good news," Gundlach told Yahoo Finance’s “The Final Round.”

"But the bad part of that news is the foreseeable horizon is typically no longer than six months, usually, more like four to six months," the billionaire investor said.

"Everything was really flashing green lights for the economy entering 2018. And yet, what's interesting about that when things were flashing green light, most people don't understand that it means it's kind of the end of the game for risk assets," the DoubleLine Capital chief executive officer said.

Known as a contrarian, he was one of the few money managers to predict that Donald Trump would be elected president and that stocks would fall last year.

"Entering 2019, there was a narrative developing that is also true of some synchronized global slowdown. Yet, the indicators that we look at for a recession are not even flashing fully yellow yet," he said, adding, "It's more of a yellowish green right now."

The unemployment rate is starting to “flash yellow a little bit," Gundlach, who oversees more than $120 billion, said.

"Unemployment claims, the report every Thursday, have bottomed out and appear to be in a rising trend. And the unemployment rate now is above its 12-month moving average unemployment rate. And that's a necessary condition to be talking about potential recession," he said.

"[The] unemployment rate right now is at 4.0%, so it's not terribly far away from that moving average. But we have to watch that very carefully, because if that cracks above, then I think we would say that we're starting to flash yellow for a recession."

Gundlach spoke just two weeks after he warned underlying data in consumer confidence suggest a recession is coming.

Gundlach tweeted late last month after the Conference Board’s confidence survey for January showed the widest gap between current sentiment and expectations since March 2001, the first month of the U.S. recession that year, Bloomberg reported.

Gundlach tracks confidence as a leading indicator of recession. In a Jan. 8 webcast, he said consumer expectations were “flashing yellow” for recession.

Known as a contrarian, he was one of the few money managers to predict that Donald Trump would be elected president and that stocks would fall last year.

Gundlach isn’t alone in his warnings about the economy.

Recession risk is real, according to Nobel laureate Robert Shiller, and one might come as soon as this year, Bloomberg reported.

Whether the U.S. will experience a contraction has become one of the hottest debated topics among investors amid uncertainty surrounding U.S.-China trade talks, deteriorating earnings forecasts and slowing growth around the globe. The ambiguity caused the almost decade long rally in U.S. stocks to come within a whisker of its end in December.

“It seems like there has to be an elevated probability of a recession this year or next year,” the Yale University economics professor said during a panel discussion at the InsideETFs conference in Hollywood, Florida.

“There are these signs that show people are worried. It’s also the longest bull market in the stock market,” he said. “There’s a spirit of thinking –- it aught to come to an end soon.”

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Investment guru Jeffrey Gundlach warns that while a recession isn’t on the horizon, some warning signs are starting to “flash yellow.”
gundlach, recession, warnings, economy
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2019-41-15
Friday, 15 February 2019 01:41 PM
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