A worthwhile overview of current conditions and implications for asset prices and unemployment in this presentation…
In his Dec. 5, 2023, webcast, DoubleLine CEO and Chief Investment Officer Jeffrey Gundlach (0:06) tours a global environment undergoing a sweeping breakdown of norms that for decades conditioned the behavior of different assets, financing of the U.S. government and performance of the U.S. economy. Here is a direct video link.
Mr. Gundlach begins with the dilemma of the U.S. debt cycle (1:07), “something that is barreling right at us.” He presents a series of charts on federal expense (3:25) interest on U.S. Treasury debt outstanding and adjusting Congressional Budget Office deficit projections for the change in the federal deficit following previous recessions.
By 2028, the deficit could swell to between $3.5 trillion and $4.8 trillion (7:08), equal to 20% of gross domestic product. Mr. Gundlach turns to the question of whether a recession is coming (7:58). This discussion begins with the Treasury yield curve, as measured by yields on the 10-year and two-year Treasury. True to the form of its behavior leading into past recessions, the curve inverted for an extended period and has been de-inverting from a maximum inversion this cycle of negative 108 basis points. By this metric, he suggests that, if the Fed stands pat on rates while the 10-year continues to rally, the completion of the curve’s de-inversion, signaling imminent recession, could occur in “2Q or so of next year.”
Another metric (13:10), the backup of the U-3 unemployment rate, “looks remarkably like the front edge of a recession.”
With respect to markets, Mr. Gundlach disagrees with observers who see record asset levels in money market funds as bullish for risk assets such as stocks (17:47). Moving from Treasury bills into stocks, he says, would be a “monumental change in risk appetite”; rather, he sees the size of assets in money market funds as “bullish for Treasury bonds and other high-quality bonds.”
