A web seminar hosted by DoubleLine Capital’s Jeff Gundlach, titled “Mirror, Mirror on the Wall,” was a whirlwind trip around the globe to where the star fixed-income manager sees problem and potential.
“If you look into a mirror, obviously everything looks backwards,” Gundlach (left) said, when explaining the title. “It’s a way to get a very different view of the world and what’s happening in it.”
Covering the early 1980s through the present, Gundlach noted the paradigm has shifted dramatically in the past five years.
“Over the majority of the time period, we’ve seen a benign inflation period characterized by stable to falling interest rates,” he said. “It’s quite likely interest rates will now rise and boost the returns of government instruments.”
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Employing sculpture as a metaphor, he noted the fragility of many of the pieces of famed artist Anish Kapoor, even though many of Kapoor’s pieces are reinforced with steel.
“I’m similarly impressed by the fragility of our economic system, even though it’s been reinforced with so many heavy measures by governments around the globe, ECB bond-buying programs and zero interest rate policies here in the U.S., for instance.”
Raising the issue of long-term spending patterns versus tax receipts, he noted that very small gaps between the two, if they persist over an extended period of time, will create “some very large deltas.”
As for federal spending as a percentage of GDP, he noted the consistency among presidents since Ronald Reagan, despite the difference between political parties.