jefrey gundlach

Jeffrey Gundlach, who’s also known as the “bond king” is bullish on the outlook for fixed income securities and said that they look the most attractive that they did in the last 10 years.

Gundlach also advised investors to sell stocks and buy bonds. He said, “It was brutal to be a bond investor for the past several years but now it’s actually the place to be and the opportunities are more exciting now than any time, in my view, in the past 10 years.”

Bond prices have crashed this year. Notably, bond prices are inversely correlated to bond yields. Bond yields crashed between 2020 and 2021 on the Federal Reserve’s monetary policy easing. However, late last year, the Fed began reversing its accommodative monetary policy.

It began tapering last year and eventually raised rates by 25 basis points in March 2022. It has since raised rates thrice and most economists expect it to raise rates by 75 basis points at the next meeting also.

Gundlach Believes US Fed is Making a Mistake of Overtightening

Gundlach meanwhile believes that the Fed is making a mistake by “over tightening” and called upon the US Central Bank to “stop and assess.” Fed chairman Jerome Powell meanwhile looks in no mood to oblige those calling for rate cuts.

At the Jackson Hole Symposium last month, Powell said, “restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy.” He added, “We are moving our policy stance purposefully to a level that will be sufficiently restrictive to return inflation to 2%.”

US Inflation was Higher Than Expected in August

US August CPI was 8.3% on an annualized basis, which was way ahead of the 8.0% that economists were expecting. On a monthly basis, CPI rose 0.1% while core inflation rose 0.6%. Both these metrics were far worse than expected and analysts were expecting CPI to fall 0.1% while core inflation to rise 0.3%

Growth stocks have crashed this year amid rising inflation and higher interest rates. However, there are some investments that can outperform during inflation.

US inflation is way above what the Fed is comfortable with. From calling inflation “transitory” in 2021, the Fed is now worried that inflation might become “entrenched.”

What Makes Gundlach Bullish on Bonds?

Notably, US 10-year bond yield almost hit 3.5% before the Fed’s June meeting. Yields fell sharply thereafter as markets started pricing in a Fed pivot. However, the Fed’s July minutes, Powell’s Jackson Hole Symposium speech, and now the August CPI release, have dashed all hopes of a Fed pivot.

The yields on two-year US Treasury are now near 4%. Also, the yield curve inversion has deepened which many analysts see as a sign of a US recession. Yesterday, FedEx talked about a global recession after posting dismal earnings in its fiscal first quarter of 2023.

Gundlach meanwhile is bullish on bonds and advises investors to invest in bonds. He said, “You want to own Treasurys mixed with risky credit, and that way you have some sort of a hedge and offset.” He is of the view that eventually the Fed would need to cut rates.

While many have been worried about higher inflation, Cathie Wood of ARK Invest predicts a deflation. Elon Musk and Jeffrey Gundlach have also echoed Wood’s views on inflation. Wood is known to back her favorite companies and bought the dip in companies like DocuSign and Zoom Video Communications.

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