Last updated: 12:08 / Friday, 31 July 2020
Once we get past a rough patch...

Gundlach: "The Biggest Winner Out of All of This May Be the American Economy"

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  • The selloff caused by the COVID-19 outbreak has further to go, and U.S. financial markets are not likely to see a bottom until later in April, said DoubleLine Capital CEO Jeffrey Gundlach
  • Gundlach argued that financial markets are behaving dysfunctionally, in part because of the ongoing affect of monetary and fiscal stimulus packages
  • "The U.S. economy may actually be in a “better place” as the recovery is likely to focus on a more resilient economy with more manufacturing and self-sufficiency in the U.S. and less emphasis on the American consumer"

The selloff caused by the COVID-19 outbreak has further to go, and U.S. financial markets are not likely to see a bottom until later in April, said  DoubleLine Capital CEO Jeffrey Gundlach in a webcast meant to address the economic effects of the coronavirus pandemic.

During the webcast called "Tale of Two Sinks," a reference to the 2008 financial crisis and the current one, as well as the “kitchen sink” approach to stimulus taken by fiscal policy makers and the Fed, Gundlach said the economy and financial markets will never be the same, and the worst is yet to come.

The so called new bond king believes the coronavirus sell-off is not over yet and the market will hit a more “enduring” bottom after taking out the March low. "I think we are going to get something that resembles that panicky feeling again during the month of April."

He also said that the market was acting "somewhat dysfunctionally" and that banks' projections of a “v-shaped”  US economic recovery were highly optimistic. Instead, he said that this year’s market declines might resemble those from the 1929 stock market crash, where the financial markets held their low levels for nearly a year before worsening again.

“I don’t think it will be back to where it was prior for a long time, particularly on a real basis,” he said.

Gundlach argued that financial markets are behaving dysfunctionally, in part because of the ongoing affect of monetary and fiscal stimulus packages.

The Fed’s monetary stimulus is choosing “winners and losers” in fixed-income markets, which are not functioning as a safe haven in the current environment, but creating irrational disparities in performance between different asset classes, "and at some point “another sink” will be necessary to restore some rationality to financial markets," said Gundlach.

But in time, he believes that "the U.S. economy may actually be in a “better place” as the recovery is likely to focus on a more resilient economy with more manufacturing and self-sufficiency in the U.S. and less emphasis on the American consumer," Gundlach said.

"The biggest winner out of all of this may be the American economy, once we get past a rough patch," he said.

Gundlach also said that the Fed’s monetary stimulus has already eclipsed all of its accommodative interest rate and quantitative easing polices used during the 2008-2009 global financial crisis and “Great Recession,” while Congress’s $2.2 trillion fiscal stimulus is equally unprecedented.

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