Peace, Love, And Understanding…not

Jeffrey Gundlach discusses the theme of peace, love, and understanding, relating it to the current social atmosphere. He mentions the lyrics of a song by Nick Lowe, covered by Elvis Costello, that he feels captures the mood of society today.

Gundlach discusses the potential for a recession based on the inverted yield curve. He explains that the curve has been inverted for a while now, which usually signals a recession. However, he notes that the curve needs to stay inverted for an extended period before it becomes a reliable indicator. Gundlach anticipates a recession in the first half of 2024 due to factors such as the impact of tax policies, the cumulative effect of Fed tightening, and government response. He also suggests that this recession may be inflationary, with rising interest rates and a potential stagflation scenario.

He points out that the yield on the global aggregate has doubled compared to the MSCI All-World Index, which is similar to the setup prior to the global financial crisis.

CPI, rent indexes, PPI, export and import prices, and the PCE point out that there are some signs of relief in the CPI, with expectations of inflation going back down to pre-pandemic levels. Overall, he suggests that there is no significant inflationary pressure at the moment 

Moving on to commodities, Gundlach mentions that they have been relatively flat, except for the recent surge in oil prices, which could potentially lead to a commodity breakout. He explains that he is becoming more bullish on commodities, although the timing may be more short-term oriented due to the possibility of an upcoming recession. Gundlach also comments on gold, stating that it is range-bound and needs to break above the 200-day moving average to show more positive signs. 

He highlights that investment grade corporate bonds have moderately retraced their widening from last year but are not particularly cheap. High yield bonds have seen a significant spread compression but Gundlach is not very interested in them compared to structured credit.

the current state of the mortgage market, emphasizing that it presents a low risk and high reward opportunity. He notes that mortgage spreads are at one of the highest levels in recent years, while the risk of the market is the lowest ever due to positive convexity and the absence of refinancing risks. 


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