Bond king Jeff Gundlach on lower 2023 rates, more bank trouble, recession odds ‘pretty darn high’

 

Bond king Jeff Gundlach had some key rate market and economic outlook comments following yesterday’s Fed meeting as follows:

– The Fed had ‘sort of a hawkish tone’ despite 10 straight hikes the last 14 months.

– They’re resolute resolute on 2% their inflation commitment.

– Inflation has come down a lot.

– CPI peaked at 9% in June 2022 and was down to 4.9% for March 2023.

– Core PCE peaked at 5.2% in March 2022 and was down to 4.6% for March 2023.

– DoubleLine thinks CPI inflation will come down to 4% for 2023.

– That would imply the Fed holds on overnight bank-to-bank lending rates at current level.

– The X-factor is “if something goes wrong with the economy which is certainly not a low probability.”

– Risk factors include bank issues that caused failures this year continuing.

– Higher-for-longer rates aren’t something people are used to.

– People pull money from banks to put them in other banks or other investments that yield more.

– “It seems to me that deposits are going to keep drifting out, and I don’t think this is the last chapter in the regional bank problem.”

– Unless the Fed cuts rates, this could continue.

– The bond market is pricing that cuts could ‘almost assuredly by the end of this year’.

– Why? Because recession odds are pretty darn high right now.

– We’ve got rates up 500 basis points, credit contraction with the bank problems, and quantitative tightening.

– This makes markets too complacent on favoring risk assets.

– Investors should be going up in quality on bond portfolios.

– If this happens, we might see rates drop as quality bond investments like mortgage bonds rally.