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DoubleLine Capital CEO Jeffrey Gundlach has stated that there are mounting economic issues, and a recession is likely to occur in the coming months. He believes that this could lead to the Federal Reserve cutting rates a few times this year.
“Economic headwinds are building. The recession is here in a few months,” Gundlach stated. “All we really need is the unemployment rate to go higher.”
Gundlach believes that when faced with the decision to combat inflation or prioritise the economy, the Federal Reserve will always choose the latter. He states that they will sacrifice the fight against inflation to address rising unemployment and other economic concerns.
Gundlach warns that reducing rates during an inflationary period is problematic as it could exacerbate the already high prices. He also suggests that if there is a recession during this financial system, the Federal Reserve will have to act very drastically, involving more deficit spending and quantitative easing. According to him, it’s widely recognised that a recession is imminent, and it’s only a matter of how severe it will be.
Gundlach has cautioned to keep an eye out for potential liquidity problems in the economy.
Gundlach has warned that if the Fed continues with its current rate policy, the gap between T-bill and banking system returns will widen, leading to liquidity problems. He suggests that the best strategy is to reduce risk while the markets are strong by selling equities during rallies.
Gundlach previously recommended buying gold at $1,800 an ounce in March, despite the Fed’s aggressive tightening cycle. Recently, gold prices have rallied due to the banking crisis, and at the time of writing, June Comex gold futures were up 1.15% on the day and 7% on the month, testing the $2,000 an ounce level three times.
Gundlach is still bullish on gold and thinks it deserves a place in portfolios at $1,800 despite the Fed’s rising interest rates.
In summary, Gundlach expresses concerns about the state of the US economy, warning of an upcoming recession and the need for drastic action from the Federal Reserve. He suggests reducing risk while the markets are strong and keeping an eye on potential liquidity problems. Additionally, he advises investing in gold, which he believes deserves a place in portfolios, despite the Fed’s rising interest rates.