U.S. investors are facing an ugly future thanks to a booming trade deficit, rapidly expanding budget deficit and ballooning interest payments on government debt, according to DoubleLine Capital CEO Jeffrey Gundlach, who also says the stock market likely will end the year on the downside.
“The U.S. interest expense is projected by the [Congressional Budget Office] to explode higher starting yesterday,” he said, referring to CBO projections that the country’s interest cost will grow from representing about 1.25% of the gross domestic product in 2015 to 3% in 2030.
Plus, the budget deficit itself could grow to 11% to 13% of GDP. “This is something that is getting more and more attention, and I think it has to,” Gundlach said.
Turning to President Donald Trump, whose election he predicted, “It’s really shocking that the president ran on the promise of eliminating the national debt, and here it is at $22 trillion and going higher by about $1.5 trillion a year in a growing economy,” he said.
Gundlach also highlighted the growth in the trade deficit over the past two years — from $500 billion to $600 billion. “Donald Trump is a $100 billion man,” he said.
In his “Highway to Hell” webcast Tuesday, Gundlach shared other dire predictions — such as slowing growth in the global economy — using 70 charts.
As for stocks, “I think they’ll go negative on a year-to-date basis, probably sometime during the second quarter [or] early third quarter,” he said.
Gundlach says that despite the recent jump in stocks — which came after the Federal Reserve made a “remarkable 180-degree turn” on interest rate hikes in early January — the U.S. stock market “was and still is in a bear market.”
As for volatility, “We’ve already had a pretty strong zig. I’m expecting before long a zag,” he said.
Gundlach also had a cautionary tale for those who believe that equities generally go up over the long term: “People who say that stocks go up over all 30-year timeframes have to look at Japan,” where the benchmark TOPIX index has dropped roughly one-third over the 30 years since the bursting of Japan’s bubble economy.