Gundlach: 6 Warning Signs for the Economy

While the U.S. economy has held up better than most people expected since the pandemic, DoubleLine Capital CEO Jeffrey Gundlach sees a potential storm brewing.

Historically, it’s a reliable recessionary signal when the M2 money supply declines year over year, as it has since 2022, he explained.

From 2009 to 2019, there was a very steady rise in M2, Gundlach noted. “But then all of a sudden, trillions of dollars get dumped into it. And that money is still there,” he said, referring to pandemic-related economic stimulus money.

“And this is one of the reasons why I think that the economy did not revert to its usual recessionary characteristic … when the M2 went negative year over year,” Gundlach said in a webcast Tuesday. He said he was among those who expected the economy to weaken based on the declining money supply.

“But there are things that are certainly storm clouds for the economy,” he said.

The Federal Reserve has a “tractor pull problem” with $17 trillion in Treasury securities coming due in the next three years while interest rates are far higher than in the 10 years before 2022, Gundlach said. Some of those notes were issued in 2018 or 2019 with 25- or 50-basis-point coupons and will roll over at much higher rates at maturity, he explained.

“This might be one of the insidious reasons why the Fed is a little bit more anxious than a lot of people think they should be to cut interest rates,” he said. Five-year bonds issued in 2019, for example, will be rolling over at a 400-basis-point interest rate increase if interest rates stay where they are. “This is turning into an absolutely critical problem.”

The billionaire investor touched on several recessionary signs he sees, including the six in this gallery.