Two weeks ago, long before the outcome of the Indiana primary was known, we first reported that it was Jeff Gundlach‘s opinion that Donald Trump would be the winner of the 2016 presidential race. For those who missed it, here are the key excerpts from his interview posted on April 22.
Q. Who do you think will win the race for the white house?
Gundlach: Trump is going to win. I think Clinton and Sanders are both very poor candidates. I know the polls are signaling the opposite. But the polls said the opposite four years ago, too.
Q. How would the financial markets react should Trump win?
Gundlach: In the short term, Trump winning would be probably very positive for the economy. He says a lot of contradictory things and things that are not very specific. But he does say that he will build up the military and that he will build a wall at the border to Mexico. If he wins he’s got at least to try those things. Also, he might initiate a big infrastructure program. What’s his campaign slogan? Make America great again. What that means is let’s go back to the past, let’s go back to the 1960s economy. So he might spend a lot of money on airports, roads and weapons. I think Trump would run up a huge deficit. Trump is very comfortable with debt. He’s a debt guy. His whole business has had a lot of debt over time and he has gone bankrupt with several enterprises. So I think you could have a debt-fuelled boom. But the overall debt level is already so high that you start to wonder what would happen after that.
Q. How do you explain that a guy like Trump might actually win the election?
Gundlach: His popularity is very similar to the popularity of unconstrained bond funds. About two or three years ago, unconstrained bond funds became the most popular thing in the United States retail market and in the institutional market probably, too. Because when investors analyzed all the bond segments they were familiar with, they didn’t like what they saw. They didn’t like treasuries, they were scared of the Fed, they didn’t like traditional strategies. So, if everything you think you know looks unattractive, you go for something that you have no idea about. And that’s an unconstrained bond fund. The thinking was: «Don’t even tell me what you are doing, I do not want to know. Because if I know, I won’t like it. » The same is true with respect to the elections: «Don’t give me a traditional candidate. Give me someone who I have no idea what he is going to do» – and that’s basically Donald Trump.
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Two weeks later, CNBC caught up with Gundlach to report essentially the same: following the Sohn Conference, Gundlach once again stated that he believes that Trump would become president.
The CEO of DoubleLine, which manages $84 billion for clients, told CNBC he’s apolitical but said, “I think it’s important for investors to deal with reality.” Repeating his previous comment, Gundlach said that Trump will have a very large deficit while in the Oval Office. “He’s very comfortable with debt. We know that about Donald Trump.”
Gundlach added that the presumptive Republican presidential nominee is just like another man many in the GOP idolize: former President Ronald Reagan. “Reagan was a debt-based economic guy and I think Trump will be,” Gundlach noted.
“It will probably look like it’s working at first. The question is, will the boost to the economy from infrastructure projects and the like off-set the potential drag from shrinking global trade.”
So how is Gundlach preparing and trading in advance “Trump presidency”? “Look at arms manufacturers, said Gundlach. He would avoid companies that are susceptible to global trade slowdowns, particularly those related to Mexico and China.“
A Trump presidency would also be perceived as negative by the market. Recall that on April 26, Gundlach told Reuters that Trump’s protectionist policies could mean negative global growth: “As he gets the nomination, the markets and investors are going to worry about it more. You will see a downgrading of global growth based on geopolitical risks. You must factor this into your risk-management.”
In summary: buy guns, stay away from FedEx, start legging into market shorts, oh and also Gundlach seemed to fully agree with Druckenmiller’s speech, which to us simply means Gundlach is yet another advocate for the Fed “dead end” trade which ultimately ends in gold.
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