You can forgive Jeffrey Gundlach, a long-suffering Buffalo Bills fan, if he has the NFL on his mind now that the team he supports looks like the Super Bowl favorite. The chief executive of DoubleLine Capital says he recalls an ad for Crown Royal whisky, in which a referee tells drinkers to take a water break.
“The tagline is ‘stay in the game,’” said Gundlach, in a Twitter Spaces conversation hosted by Jennifer Ablan, the editor in chief of Pension and Investments. “[The Fed] started partying — which is a euphemism for tightening — one shot, two shots, back-to-back three shots, and now three more … like dude, have a water, you know? Slow down.”
Gundlach says there’s a serious risk the Fed will overtighten, and overshoot on the downside just as it overshot on the upside, particularly as it’s also reducing the size of its balance sheet through quantitative tightening. “Since they’re trying to get [inflation] down 700 basis points, the overshoot may be even bigger,” he says. “Maybe it moves down to negative 4% on CPI, or negative 2%.”
He says that’s what the bond market is saying with inflation running at between 8% and 9%. “Why is anyone buying a 3.50%-ish 30-year Treasury
? The only logic that squares the circle is that inflation will overshoot to the downside.”
Gundlach says the S&P 500
will fall to as low as 3,000, and maybe “3,400 — either way, lower than where it is today.” And, perhaps not surprising from the man known as the bond king, he sees tons of opportunities in the fixed income space. “Bonds are wickedly cheap to stocks,” he said. “And this is from somebody who said in January, stock markets are way overvalued, but was cheap to bonds. Not anymore.”
“This is a very good time to buy bonds, and one of the ways I know that, is nobody wants to do it,” he said.
For investors with low risk tolerance, he said a bank loan fund made sense. He said the spread to short-term interest rates is about 300 basis points. So if…