When Jeffrey Gundlach hosts a Web presentation, people listen -- at least to make sure the bond trader doesn't call them out for contributing to the current economic malaise. Gundlach, a high-profile, fixed-income expert (and a former Morningstar Fund Manager of the Year), has a habit for speaking his mind.
This week, the CEO and chief investment officer of DoubleLine Capital, gave a presentation titled Deficits Don't Matter -- in which he argued that deficits really do matter. He refuted Dick Cheney’s 2002 assertion that “Reagan proved that deficits don't matter,” noting, "Obviously deficits do matter, and today they seem to matter at an accelerated rate." And then, in a masterfully nonpartisan rant, he went on to criticize both Mitt Romney, for his support for low taxes, and Barack Obama, for overlooking the fact that low participation is compressing the unemployment rate.
He blasted the Fed ("a place of confusion these days"), and came down even harder on the Europeans for thinking that there is an alternative to austerity ("there are no more resources to magically stimulate job growth, there's just more debt"). In fact, he included an image of Edvard Munch's "The Scream" in his presentation.
Gundlach argued that the figure in the painting isn't actually the one screaming. Rather, he said, he was simply covering his ears to block out the screams coming from a nearby insane asylum -- and that, he said, reminded him of what's going on in Europe. "People in Europe have been covering their ears," he noted. And he challenges the notion that things will improve now that voters have turned to leaders that tout growth over austerity. He said growth is just code word for more debt -- the very thing that created the mess in Europe in the first place.
Gundlach made his points by skewering both credit card slogans and borrowers -- from American Express's "Long live dreams" ("Maybe it should be, 'Long live nightmares.' ") to Visa's "Wherever it takes you, the future takes Visa." ("It’s almost like, the present takes Visa, and it’s going to take you into a lousy future.")
And he made an interesting observation about interest rates, noting that "The real reason the Fed won't raise rates is because the size of government debt. Interest payments right now are not so bad because interest rate is low." He doesn't think the Fed will raise interest rates unless the Consumer Price Index hits 4% to 5%, significantly higher than the official current rate.
- Germany may see close to 0% growth this year because of the crisis, and Greece may leave the European Union by the end of the year.
- Unemployment in Europe "is out of control," especially among the young. "There's nothing more scary than a huge number of 25-year-old men with no job, no money, and nothing to do."
- It's "mindblowing" that the US outspends the next 17 countries behind it in defense spending, but that is "not what's busted the budget." He thinks healthcare costs and programs like food stamps are more responsible for soaring debt levels.
You can sample highlights from Gundlach's presentation by clicking here.