Jeffrey Gundlach’s Macro and Market Update: Cave People

In his webcast titled “Cave People” in reference to the philosopher Plato’s “Allegory of the Cave,” DoubleLine CEO Jeffrey Gundlach (0:06) on March 12, 2023, briefly reprises his outlook on the federal debt spiral before reviewing other macroeconomic and market topics, including recessionary “storm clouds.” Notably, while the government’s establishment survey has resilient nonfarm payrolls, Mr. Gundlach marshals evidence showing “the rubric that there’s this booming employment economy is contradicted by other areas.” Among subjects addressed in the webcast, Mr. Gundlach covers:
3:54 - Federal deficit and national debt spiral
8:15 - Massive COVID-19-era monetary stimulus as explanation for the absence (to date) of recession
9:24 - Protracted inversion of the U.S. Treasury yield curve
10:35 - Weakening consumer confidence
11:20 - U-3 unemployment rate exceeding 12-month moving average and nearing 36-month MA
12:36 - Questionable veracity of once-trustworthy economic statistics due to plunging survey response rates
15:32 - Recessionary divergence between cyclical and noncyclical employment
17:06 - Deteriorating hiring plans at small businesses
17:50 - Falling average weekly hours worked in manufacturing. “First they cut the hours, and then they cut the bodies.”
20:16 - Signs of stress among consumers, growing usage of credit cards and a 600-basis point rise to a “punishing” 23% in the average interest rate on credit card debt as forerunners of a future pullback in consumer spending
21:11 - Inflation as gauged by headline and core CPI
23:27 - Housing component of CPI versus the Zillow Rent Index and prospects of lower rents due to a construction boom in multifamily housing
25:11 - Inflation as gauged by headline and core PCE
27:47 - Inflation as gauged by export and import prices
28:18 - Commodity prices signaling weak global growth
29:09 - Review of the Treasury market and a warning regarding narrow credit spreads in high yield corporate bonds
32:58 - Year-to-date performance of the credit sectors of fixed income, including market pricing of future defaults in CCC corporate bonds
36:40 - Still-wide spreads on Agency mortgage-backed securities amid discount prices on these securities
38:01 - AAA spreads compared across non-Agency commercial mortgage-backed securities (CMBS), collateralized loan obligations and corporate bonds
38:31 - Attractive CMBS versus corporate bonds across AAA, A and BBB cohorts, with warnings against index investing in CMBS
39:27 - Emerging markets fixed income, which with the Federal Reserve’s Nov. 1, 2023, pivot “finally joined the risk asset party,” although Mr. Gundlach is awaiting a weaker dollar to support the sector