Jeffrey Gundlach, founder and CEO of DoubleLine Capital, predicted today that the odds of a U.S. recession have crossed the 50% mark.
“I do think the chance of recession is higher than most people believe. I actually think it is higher than 50%, coming in the next few quarters,” he said during an interview on CNBC today. “I think 50 to 60 is where I am.”
He noted lower government spending, which he favors, would lower the pace of economic growth. “You know, $2.2 trillion is the actual budget deficit for last 12 months. $2.2 trillion. And if you’re going to get that down to any sort of sensible number, it’s going to knock a lot off of GDP. The one thing I think that is really bizarre is people that say we’re going to get growth up to 3% real, or something like this, or even 4% or 5% nominal, and at the same time, we’re going to balance the budget deficit. Balancing the budget deficit is not going to help increase growth. That’s what the detox is all about. You’ve got a problem. You’ve got to start solving the problem. And I’ve been in favor of this for a long time.”
“Cutting 100 lousy billion dollars out of the government budget is being met with hysteria,” he said. “That’s not even a drop in the bucket. I mean, it’s nothing, so we need to cut a lot more than that if we’re going to get to a true detox.”
Gundlach said he believes the tariffs proposed by the Trump administration will be inflationary, and the inflation rate was headed higher regardless. With the Fed saying they’re going to cut interest rates and more tariffs coming, his team has a hard time seeing how the inflation rate is going to settle at 2%, he added.
Meanwhile, he noted consumers are still distressed about prices. “The prices went up so much over a three-year time period. And yeah, eggs are down a little bit, and gas is down. Oil is down a little bit, but the price level is still very, very high. And I think that’s really what’s hurting,” he said. “That’s one of the reasons for my view on the consumer and the economy. I think the consumer is still grappling, and perhaps is running out of wherewithal to grapple with prices of necessities. And it seems like inflation never really moves down. The price level never really goes down. The inflation rate can go down, but the price level doesn’t and we’re going to be lingering with that, and that’s putting downward pressure on consumers.”
The Markets
Gundlach observed inertia and uncertainty has meant the markets haven’t done well. “Not a lot of money is being made out of financial assets. What’s really working are the real assets. The commodities are up. Gold is up a lot. And Bitcoin … it’s just gold on leverage, really, the way I think about it.”
Since the Fed started cutting interest rates, the U.S. has stopped outperforming, he said.
“Europe is outperforming, and even emerging markets have started outperforming. And I think that’s sensible, given this reindustrialization concept in Europe,” Gundlach said. “One of the things that might be an unintended consequence of all of Trump’s rhetoric is he’s making people think about how much can they rely on the United States for their weapons, for their defense, for their cooperation, and that’s probably going to continue to make Europe very, very bullish versus the S&P 500, which has been my concept for a couple of years now. It didn’t really work or not work, but all of a sudden, on a year-to-date basis, Europe is doing really well, and the emerging markets are doing pretty well too.”
