“I Feel Young Again” – Jeff Gundlach Annual Just Markets Webcast Live
It’s that time of the year when Jeffrey Gundlach, the billionaire money manager and chief investment officer at DoubleLine Capital, gives his outlook for 2021 in his annual “Just Markets” webcast today at 4:15 p.m., this time titled “I feel young again. Readers can register for the free webcast which will only discuss markets here (or by clicking on the image below).
As Bloomberg reminds us, we last heard from Gundlach at the start of December when he focused heavily on inflation, saying that it was likely we could see a 7% print for the CPI reading (it will tomorrow). He also told us that he thought markets could be facing rougher, choppier waters after the Federal Reserve signaled that it was willing to quicken its tapering program.
Since then, we’ve learned — through the release of meeting minutes — that central bank officials might favor earlier and faster rate hikes as well as a balance-sheet runoff. Indeed, that’s caused a lot of choppiness in the stock market, with richly valued equities taking a big beating so far this year.
Gundlach’s talking points may overlap with the prominent themes we’ve been seeing discussed in 2022 outlooks. Listeners will want to know his take on the Federal Reserve’s path toward tightening and how it’ll play out in markets, as well as his outlook on inflation and what lingering impact the variants of the coronavirus may have.
We will highlight the key presentation notes in this post, which starts off with a bang, and a comparison between Biden and Carter…
… as part of his contrast of today’s negative real rates with the 1970s. Back then interest rates were high, and inflation even higher. Now, rates are low and inflation high. Gundlach says Powell today further acknowledged the inflationary problem. He’s referring to the Fed chairman’s appearance in front of Congress for his re-confirmation hearing.
Gundlach then goes straight to the big guns, showing the surge in the market via the famous JPM chart which goes back to 1996, and where Gundlach says “we had this huge run” that was largely uninterrupted from 1998-2018″….
… comparing it to pre- and post-covid goods spending, saying that we’ve had similar goods spending in the past two years as we did in the previous decade…
… and ultimately the Fed’s balance sheet change.
Gundlach says Powell is dusting off the 2018 “playbook” in terms of shrinking the balance sheet, noting that autopilot-QT led to a selloff in the stock market in 2018 which ultimately caused the Fed to pivot. He says that it looks like Powell is talking about repeating the quantitative tightening formula, which of course will lead to the same policy error.
Remarkably, Gundlach says something we have been warning about for the past month, namely that the Fed is hiking into a slowdown, only he goes one step further saying that “I do think recessionary pressure is building.”
The Doubleline strategist then shows various cross-asset returns in 2021, pointing out that bank loans were his top bet from last year’s webcast and that those securities outperformed…
… as well as the return of the S&P vs commodities, with Gundlach suggesting that commodities are set for a massive melt up.
Oil was the big winner last year and oil and commodities have rebounded again. Commodities are coming “roaring back,” he says and indeed, Exxon just had its best day since Feb 2021.
Going back to his recessionary point, Gundlach says consumer sentiment has “given up the ghost,” and looks like a recessionary level when scouring the chart. “This bears watching,” he says, noting to the “freefalling” sentiment which Gundlach says looks “somewhat recessionary”
He attributes this to the collapsing affordability (i.e. surging prices) of autos, which has led to the lowest ever reading in the series whether this is a good time to buy a car (he notes that people can make money by buying cars and turning around and flipping them, which is “interesting” and “unbelievable”)…
… or house.
One reason for this: mortgage rates are now well below wage growth rates. Gundlach says there are some signs that “mortgage financing looks pretty cheap” given high inflation and low rates. So far there hasn’t been much of an increase in mortgage rates.
“Home prices are still going up a lot,” Gundlach says, pointing out the obvious.
Gundlach then spends some time discussing soaring inflation, including still clogged-up west coast ports, and focuses on export and import prices. “They’re really high”, he says, adding that a lot of people don’t think export prices matter but the things we export, we also consume domestically. He also says that with export prices at all time highs, nearly 20%, all those conspiracy theorists who claim that inflation is artificially suppressed are likely correct.
Gundlach also notes that the ISM manufacturing PMI series shows some positive signs on inflation, noting that prices paid are “rolling over.” But not yet, noting that CPI will be around 7% in tomorrow’s report.
The DoubleLine founder also looks at surging wage growth, pointing to the record quits rate and the high appetites among Americans to switch jobs before citing JPMorgan CEO Jamie Dimon who sees the biggest wage inflation in his lifetime. Gundlach predicts that gains in entry-level wages will push up costs.
Gundlach then shows the Citi Inflation Surprise index, noting that every region tracked by Citi has surprised to the upside on inflation. That according to Gundlach, is one of the impetuses for Powell to change his tone from “transitory” to where he is now.
Tue, 01/11/2022 – 16:20