DoubleLine Capital CEO and Chief Investment Officer Jeffrey Gundlach says we should watch out for higher oil prices.
“At what level will oil have a negative effect on the consumer? I’d say right about now,” the bond king said Tuesday during a webcast.
He also highlighted his bullish view on commodities and his belief that the dollar will weaken. “The dollar should run out of steam pretty close to where it is right now,” Gundlach explained. “It will weaken after this counter-trend rally is over.
“Oil is going higher, and I expect it to go to $90,” he said.
On Wednesday, though, U.S. crude weakened to about $71.60 a barrel, and Brent crude futures fell to $79.21.
As for commodities, Gundlach said he had been bullish since Dec. 13. This asset class, he said, has been “the best part of markets,” with “bonds down since then stocks moving sideways in the U.S., at least.”
Asked about an upward movement in metals, Gundlach said, “For that to get going, you need the dollar to weaken.”
The U.S. Dollar Index (DXY) was at roughly $94 on Wednesday.
“The dollar’s rallied and yet oil is at a multi-year high,” Gundlach said. “That shows you oil is really strong, rallying along with the dollar. I do not see the dollar’s strength continuing.”
As it “runs out of steam,” he added, it could go as high as $95 or even $98. That is the maximum I expect, and I do not expect it to get to $98.”
In terms of inflation, he sees it “going up gently, and on a cyclical basis it should get to 3% in July for the August CPI.”
Gundlach predicts the Consumer Price Index could go to 3% as oil prices move up: “But Fed tightening and quantitative tightening could lead to headwinds for really high inflation.”
With the CPI at 3.5%, Gundlach added, “The Fed would say ‘hold on.’”
And watch for two consecutive closes above a yield of 3.22% in the 30-year Treasury.
“If we accelerate higher [then] we go to ‘the Fed has lost control’ as a possible narrative,” he explained. “The long bond is what matters. It is the last reason to suggest we might be in bond bull market if 3.22 holds.”
Gundlach also described Bitcoin’s movement as “a precursor of speculative sentiment,” adding: “It is a telltale that other risk assets could follow.”
On Wednesday, Bitcoin traded down roughly 4% at around $7,846.
— Check out Gundlach: Ignore Flattening Yield Curve Talk; Watch This Number Instead on ThinkAdvisor.