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Gundlach: Huge Political, Economic Shakeup Is Coming

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In the wake of a contentious election and a recession, it’s plausible that many Americans will “start reevaluating their political philosophy” — not just whether they’re liberal or conservative but their views on democracy entirely, DoubleLine Capital CEO Jeffrey Gundlach said Monday.

“We have people who are strongly committed to the idea of democracy, [and that it’s] the greatest thing,” he said. “And yet China has had massive economic growth with totalitarianism.”

Gundlach, who predicted Donald Trump’s win in 2016, believes the president will be reelected, but “I have far less conviction than I did in 2016 when I was certain of it,” he said

One reason for his election view is COVID-19′s spread at “big universities” in the Midwest, such as Ohio State University and the University of Wisconsin, could curb Democratic-leaning votes.

He also believes “with a reasonable degree of confidence” that the Senate will remain in Republican hands.

Sharing the ”dais” was David Rosenberg of Rosenberg Research, who wasn’t so confident, but did say the House of Representatives remaining Democratic-led is “ironclad.” Thus, if Gundlach is correct, “we’re left with what we’ve already had the past couple of months: fiscal gridlock.”

However, if there is a “blue wave,” the stimulus will come faster, and tax increases will be down the road, he added.

Yet both experts see bad times ahead for the next year no matter who wins the election. In fact, Gundlach noted that without another stimulus package, “the economy, which already is in tatters, would be a disaster.”

Some other highlights of their discussion were as follows.

White-Collar Unemployment

Gundlach noted that “there’s going to be some real employment problems. It will be borne out of information CEOs have learned about their company through a work-from-home prism.

“Most businesses will be downsizing in terms of middle management because they realize these people just watch workers, and [CEOs] don’t need that,“ he said. “[Those job losses] will be an [economic] drag. So the next stimulus will have to be huge.”

Rosenberg agreed that “the best job news is behind us.”

Evictions Will Soar

“One thing people don’t talk about is that without the stimulus, we’re going to get into a huge [wave of] evictions,” Rosenberg said.

Hold Long-Term Bonds

Both speakers were in the deflationary camp. Though Gundlach isn’t a fan of long bonds, he believes they need to be part of a portfolio.

Rosenberg is in the deflationary camp as well but believes that inflation is “going to come because the supply curve is going to become more sclerotic. And it won’t take much in the way of demand.”

He also believes long-term bonds are important for preservation of capital, being “ballast” in a portfolio during volatile times.

Where to Invest

Instead of investing in the United States, Gundlach recommended India or other emerging markets.

Rosenberg agreed, saying that while U.S. companies were buying back debt, “China was building infrastructure.”

Future Threats

Rosenberg sees COVID-19 as the largest threat to the economy going forward, “and the risk is that the vaccine is not coming as quickly.”

He added: “Think about the vaccine not coming as quickly and not getting enough stimulus. That’s prescription for something called the double-dip recession and the stock market is going down 20%.”

Gundlach sees different social and economic systems for the United States a possibility.

“We’re talking about the great benefits of capitalism when our outcomes are inferior. Is it possible that we could change in that regard?” Gundlach asked.

“Yes, it is possible. I think we’re going to see very substantial changes in our political and cultural institutions in the next six years because of the outcomes that we’ve developed seem to not be satisfying people that greatly.”

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