Billionaire Jeffrey Gundlach, who is also known as the “King of Bonds,” has warned that “painful results may arise from the coming recession.” Discussing the Federal Reserve’s stance, he stated that if the severity of the situation is not reduced, it could lead to a “very severe problem.”
‘Bond King’ Jeffrey Gundlach on the Oncoming Downturn
Jeffrey Gundlach, who is the Chief Executive Officer and Chief Investment Officer for investment management firm Doubleline, spoke about the US economy in an interview with Yahoo Finance last week. He is also known as “the Bond King” after appearing on the cover of Barron’s as “The New Bond King” in 2011. According to Forbes, his net worth currently stands at $2.2 billion.
“It doesn’t matter if it’s a soft landing or a hard landing,” he began. “People always ask me this question: How bad is the recession going to be? It doesn’t matter. So long as there is a recession, one must have a certain degree of protection.” Gundlach added:
We may witness some very interesting and unpleasant outcomes leading up to the next downturn.
He noted that one indicator “that’s key to the recession is when the unemployment rate crosses its 36-month, three-year moving average,” emphasizing: “We’re still pretty far from that, but that doesn’t occur at the front of a recession. If that happens, it suggests you’re in more of a hard-landing type of recession.”
The Federal Reserve, stated in December that “the unemployment rate would end this year at about 4.6%, up 100 basis points.” He highlighted: “Historically, when you get more than a 50 basis point increase in the unemployment rate, you’ve never avoided a recession.”
Gundlach further explained: “When you’ve got this, essentially, trying to never have a major downturn in the economy: Federal Reserve to the rescue, zero interest rates, quantitative easing, what you’re trying to do is avoid any sort of hard landing. . . ever.” He continued: “That kind of activity violates Gundlach’s law of financial physics, which is that the frequency of problems multiplied by the severity of problems equals a constant.” The billionaire opined:
The more you try to reduce the severity of issues, the more you find yourself with a very severe problem.
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