Billionaire Jeffrey Gundlach, aka “The Bond King,” warns of “painful consequences coming in the next recession. Commenting on the Federal Reserve’s attempts to curb inflation, he warns, ” The more you try to reduce the severity of the problem, the more you end up with a very serious problem.”
Jeffrey Gundlach, the “Bond King,” on the next recession
Jeffrey Gundlach, chief executive officer and chief investment officer of investment advisory firm DoubleLine, shared his outlook for the U.S. economy in an interview with Yahoo Finance last week. Gundlach is known as the “Bond King” because he was featured on the cover of Barron’s in 2011 as the “New Bond King.” His net worth is currently $2.2 billion, according to Forbes.
“It doesn’t matter if we have a soft or hard landing,” he began.” He is always asked the question, “How bad will the recession be? It doesn’t matter, as long as we are going into a recession, we need some protection.” Gundlach added:
In the next recession, whether it is very severe or not, we will see some really interesting and painful consequences.
He noted that “one indicator that is a slam dunk of a recession is when the unemployment rate exceeds its 36-month, three-year moving average,” and stressed that “we are pretty far from that, but it won’t happen on the eve of a recession. If it does, it suggests a more hard landing type of recession.”
The billionaire said that since the Federal Reserve said in December that “the unemployment rate will end this year at about 4.6% and rise 100 basis points,” “if we turn around… . it’s like they are predicting a recession for themselves,” he explained. I stressed that we are not going to be able to do that.” He said, “Historically, when unemployment rises more than 50 basis points, a recession is inevitable.
Gundlach further explained that ” When you have the Fed bailout, zero interest rates, quantitative easing, which is sort of an attempt to never cause a significant downturn in the economy, what you are trying to do is to never avoid a hard landing of any kind.” He stated. He continued, ” Such activity violates Gundlach’s rules of financial physics.” It means that the frequency of the problem x the severity of the problem equals a constant.” The billionaire opined.
The more you try to reduce the severity of a problem, the more you end up with a problem of very high severity.
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