Gundlach: Why Not Give Everyone A Billion Dollar Check Instead of QE?

Jeff Gundlach Double-line Capital closed-end funds MUTF:DLTNX FairholmeJeff Gundlach with permission from Double-line Capital

Fund manager Jeffrey Gundlach has been known to question conventional establishment economic wisdom, and today was no exception.

When considering quantitative easing, and the disparity between rich and poor – a controversial mix of topics – Gundlach wondered what ramifications would QE have on the economic cycle and the concerns for a lack of inflation.  “One way to get inflation and level out wealth, is to give everyone a check for a billion dollars!” he said, only half joking as his audience laughed at the prospect.  “But we did this in the past,” he said at a recent luncheon speech covered by Marketwatch.com.

The US Federal Reserve is said to have spent the equal of over $40,000 per person on QE, the result of which has primarily been to inflate asset prices such as the stock market, fine art and housing prices.  The increase in housing prices in particular has been difficult for the poor who had been dependent on an income, which has been falling under QE.

What if people call for a tax on profits?

“With wealth polarization, worry about corporates, whose (stock) valuations are at an all-time high,” he observed, laying the foundation for a scare. “What if they mean revert?”

But more significant – and scary for the those who benefited from QE, he questioned:  “What if they don’t mean revert, and people call to for tax on profits?”

A tax on profits.  He just got a lot of people’s rapt attention

He then mused, before leaving the topic “If you’re in the very top who benefited from QE, maybe it’s too good a deal.”

Economic issues: Gundlach

When he turned to economic issues, China was again in focus as growth continues to fall off and noting even if GDP targets are hit they will be the lowest since the early 1990s. That’s not good news for stock prices, which appear more bubbleocous with every day.  Out-of-control growth is kind of like two guys starting an investment management business in their garage, he was quoted in the report as saying. “We’re overdue for a drop in growth.”

Looking at the economic environment and what the bond market is telling investors, he speculated about a topic that wouldn’t have even been considered before 2008.  “Wouldn’t it be a kick in the head if the Fed tightened and the yield curve flattened?” Gundlach said. “That implies long-term rates not rising,” which matches some of the talk on the yield curve about buy signals in the bonds recently. “People say it’s impossible, but don’t think that way” because it could be possible, he said.



About the Author

Mark Melin
Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)valuewalk.com