Not many fund managers like to quote Ernest Hemingway in their investor presentations, much less refer to the cult-classic film “The Rocky Horror Picture Show.” But that’s just what DoubleLine CEO and Chief Investment Officer Jeff Gundlach did during a webinar late Tuesday.
Plus, the fixed-income expert wove in some critical analysis and praise of Republican presidential candidate Donald Trump, while walking participants through a multitude of (roughly 70) statistical slides on the state of the economy.
Yellin’ at Yellen
Quoting from “The Rocky Horror Picture Show” and referring to Federal Reserve Board Chair Janet Yellen, he stated: “Look at the charts. Dammit, Janet, don’t raise rates!”
Gundlach discussed a chart that shows arbitrage pricing of the Treasury yield curve (or Fed fund futures). “The odds for a [September] hike are 30% …,” he said. “It’s a heavy, heavy underdog.”
Among the many reasons he reviewed as to why now was not the time to raise rates was the current nominal gross domestic product, which had a year-over-year growth rate of 3.7% in June. (Usually, the Fed tightens when this figure is above 4%, he says.)
The Fed has a “‘watch out’ signal” rather than an “all clear,” the fixed-income expert said.
“As I said in June and at other times, I do not see the Fed raising rate this month or year,” Gundlach explained. “If they do, it’s a real problem.”
China, Trump & Trade
Without a rate hike this month, what’s likely to happen to the U.S. equity markets? They will be heavily influenced by what happens in China, he believes.
“The Chinese economy has clearly been weakening,” Gundlach said. “And the [official] GDP is only a guidepost, the leaders admit. It’s probably under the 7.7-8% target.”
As other experts point out, “When the Chinese market sneezes, all others catch a cold,” he reminded listeners. “They are the global engine of growth.”