Fans of the New England Patriots aren’t the only ones doing some Monday morning quarterbacking.
Jeffrey Gundlach, CEO and chief investment officer of DoubleLine Capital, did a bit of it himself at the Inside ETFs 2016 conference in Hollywood, Florida. He focused on the Federal Reserve and the state of the economy.
First, he asked the audience of 2,000-plus advisors and other financial professionals “What the heck is the Fed doing?”
But then he stated his own view, “I’ve said earlier that the aftermath of Fed policies [to raise rates] is going to come back to haunt us, and we see this is happening [now].”
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Next, the fixed-income guru — who unsuccessfully tried to buy a minority stake in the Buffalo Bills in 2014 through a partnership with former Bills quarterback Jim Kelly — focused on the football analogies, after saying he thought the Patriots-Broncos game on Sunday was a good one.
“Frankly, I was surprised the Patriots were still in it with six minutes left,” he said.
Then came a slide with two side-by-side photos of Seattle Seahawks Coach Pete Carroll with a scowl on his face and Fed Chairwoman Janet Yellen with a less-than-pleasant expression.
“Yellen called a Pete Carroll audible with the recent rate hike,” explained Gundlach, noting that Carroll “made what could be considered the worst call in football history” in Super Bowl XLIX by having quarterback Russell Wilson pass the ball rather than hand it to running back Marshawn Lynch.
In Yellen’s case, he said, “She said back in September 2014 that the Fed was going to raise rates. Then it didn’t, but it did so in September 2015.”
As a consequence of these moves, “The markets are collapsing, and the Fed idiotically is saying it is going to [raise rates] eight times by 2017. It’s got to dial this back or the markets are going to deteriorate … and be humiliated by the Fed,” Gundlach stated.
After these remarks, Gundlach reviewed updated charts and data that he highlighted on a recent call with investors.
Pessimism and More Pessimism
“The Fed is frozen in its thinking,” he said. “The bond market signs are saying that the Fed is only going to get half of the planned hike level.”
Describing a slide with the latest GDP data that shows the U.S. growing 2.2% per year and Europe expanding 1.6%, Gundlach asked, “Why is the U.S. raising rates when the European Central Bank is cutting them? The difference is pathetic, almost nonexistent.”
He then pointed to “a real issue: high-yield spreads for corporate bonds, which are doing very poorly at 4% vs. Treasuries.”