Yesterday, when referring to the latest interview Jeff Gundlach gave Barron’s, we presented the bearish DoubleLine “bond king’s” portfolio which he broke down as follows: “high-quality bonds, gold, and some cash.” He promptly added the following rhetorical response to inbound inquiries: “People say, “What kind of portfolio is that?” I say it’s one that is outperforming everybody else’s. I mean, bonds are up more than 5%, gold is up substantially this year [28%], and gold miners have had over a 100% gain. This is a year when it hasn’t been that tough to earn 10% with a portfolio. Most people think this is a dead-money portfolio. They’ve got it wrong. The dead-money portfolio is the S&P 500.”
Today, the market is doing its best to prove Gundlach wrong, with the S&P breaking out to new all time highs while gold takes a modest leg lower.
But while the market remains entirely reliant on the actions of central banks, and as we noted earlier, the latest push higher appears to have come from Bernanke whispering in Abe and Kuroda’s ear about the fringe benefits of helicopter money, Gundlach does not see the gains in the market trickling down into the broader economy. Just the opposite, because in another part of the same Barron’s interview, when asked if things are going to get worse – both in the economy and society – Gundlach responds as follows:
What is really happening here is that there’s massive technological change, and big changes almost always lead to political instability. People who benefit from the old construct are loath to see it change, because they don’t want to lose their power and economic advantage. And so they dig their heels in even harder. That’s what we’re seeing in Britain right now. People who remember the good old days when they had factory jobs and made a good living—that’s been taken away, and they want to do something about it… Robots are taking an awful lot of jobs. Driverless cars are coming; just think about how many jobs that is going to take away. Think of all the taxi drivers; think of all the Uber drivers who have found a source of income. How about the truck drivers? How about the livery people? A lot of people are out there driving around and getting paid for it. You get a driverless car, and all of a sudden they’re unemployed. Not all of them, of course, and not all at once. This is all part of this process.
It’s not just technology, though. Gundlach is just as worried about slumping demographics, not only :
One of the big problems in parts of Europe is a collapsing labor force. In Italy, the fertility rates are so low, and the baby-boom piece so big, that their labor force will plunge, absent immigration. Demographics are a problem that takes a generation to go away. And then you’ve got the robots, and they’re never going away. And you’ve got all this debt—the world’s debt-to-gross-domestic-product ratio is 240%—so you’re already putting a big headwind onto economic growth. Pair that with the demographics, and you get slow global growth.
When asked if he expects more political risk in the market, Gundlach responds as follows: “This is a train that’s moving down the tracks, and I don’t see it stopping until substantial change occurs. Minor fixes—like raising the top tax bracket to 39% from 36%—are not going to create an enduring solution. We are going to see it in the U.S., in our presidential election.”
Which finally brings Gundlach to the topic of Trump, and why he thinks The Donald will be America’s next president.
One of the reasons I believe Trump might win is that Brexit won. The parallels are far too great to be coincidental. They are identical in time. They are identical in mood, in the attitude of “I’m not doing what you say anymore.” People don’t want to admit that they support Trump. They hide it. A lot of people in Britain didn’t want to admit that they were voting to leave. My suspicion is that if Trump is even within the margin of error come November, he’ll win by a few percentage points.
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The establishment media is putting out a lot of scare pieces about how Trump is going to destroy the world economy; that [his presidency] could lead to protectionism, noncooperation, tariffs, and stuff like that. And, in Europe, you are having a new uptrend in noncooperation. But I’m pretty sure that if Trump wins—and I do think he is going to win—he is going to increase the deficit. He talks about building up the military, building walls. These things cost money. And if the deficit goes up, which it would under a President Trump, that will give a short-term bump to economic growth. So maybe it is not as scary as people think.
Perhaps Gundlach is right, and if indeed Japan is the Gunniea pig for Helicopter money, who better to have on top of the US economy than a president who will follow closely in Japan’s footsteps, and boost fiscal spending, expand the deficit, and in the process greenlight the Fed to do even more QE, courtesy of hundreds of billions in more Treasurys that someone has to backstop will be bought in the coming years.
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