In a recent webcast, the founder and CIO of DoubleLine Capital says the federal deficit is putting the U.S. on a “suicide mission.” This according to an article in Advisor Perspectives.
Jeffrey Gundlach warned that “The federal debt is exploding,” citing Congressional budget Office projections showing that by the year 2030, the country’s federal debt-to-GDP ratio will steadily rise from its current level of 80% to 125%. To see such a deficit expansion so late in the economy cycle, he says, is an anomaly. Historically, the article explains, “the deficit expands when the Fed funds rate is cut, which is typically during or following a recession.”
The article offered highlights of Gundlach’s comments on the global economy and the possibility of a recession:
- According to Gundlach, the macro economic environment is being pulled in two directions: both real and nominal GDP are rising, but economic growth is slowing elsewhere.
- Leading economic indicators would need to turn up negative year-over-year to signal a recession. But all sentiment indicators, he said, are strong and not pointing in that direction. “We are pretty much in the clear for the next six and probably 12 months,” he said.
- The “FANG” stocks, says Gundlach, may be “in a bubble.”
- Global growth, he argued, is not as strong as it appeared in the beginning of the year.
For more trends in fixed income, visit the Fixed Income Channel.