Jeffrey Gundlach Says Oil Tops Out At $200, Stagflation Is Here

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Jeffrey Gundlach, CEO of DoubeLine just conducted (Monday, March 7) a wide-ranging 30-minute interview with Melissa Francis and made comments on Magnifi Media by TIFIN.

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Highlights from Jeff Gundlach today:

  • Crude is going to $200 a barrel this year
  • Need to start admitting we are running into stagflation. We are there.
  • Dollar cost out of US stocks and into Emerging Markets
  • Fed has no choice to raise interest rates while going into a recession which hasn’t been done before
  • The Fed is in difficult position
  • These price spikes will need Fed to be aggressive. We are already at 7.5% inflation rate.
  • I'm buying 30-year bonds now, and like cash
  • A year ago, I talked about how inflation may go to 4%; now it's double that.
  • We are underestimating inflation because we have all this stimulus that takes time to go through the system
  • This Ukraine makes it even more aggressive; stock market is in a bear market; right there as inflation is going up, economy is likely to slow down
  • No 1 goal of the Fed: stable prices
  • My fear is that we see another round of this tool of stimulus, of money printed.
  • Every region of the world has inflation data surprising to the upside
  • The Fed has to act on this, and act aggressively
  • Raising rates 50 basis pts seems off the table, but 25 is guaranteed and at least 4 hikes--and it's still not enough
  • Inflation is so high compared to interest rates, so it will take aggressive action.
  • Flat yield curve sends a monstrous signal

Q: Hard to imagine the Fed today with the will of a Volker? Hard to imagine they have the will to do that? Will you bet your money that the Fed will do that?

  • I'm already doing that; I have low risk position
  • I joke that we could replace the 800 economists at Fed with a chart of the 2-year treasury yield on a Bloomberg screen because they just follow the 2-year treasury!
  • Everything is dependent upon how the 2-year treasury responds. They will raise until a recession comes
  • Recession will come at low interest rates will lead to another bailout 
  • I don’t like dollar-based investments at this point.
  • Flat yield curve is highly correlated to a low dollar.
  • I see it as, the authorities are drug pushers and are putting heroine into the economy all the tame and they keep getting bigger and bigger and maybe the next round is laced with Fentanyl

Q: Russia/Ukraine: confident in Biden administration to deal with it?

  • They haven't done a good job so far. low report card.
  • In December and in January, we said we would not send troops in Ukraine, and this is the reason why Ukraine was invaded.
  • We should have supported them with tremendous supplies, but we didn't do much of that
  • I have not seen a lot of strength; seen a lot of flip flopping in this administration
  • I worry Taiwan is in the balance too. 
  • Implementing a No-fly zone is the only thing that will stop Russia
  • I don't think Biden is strong enough to meet the moment here. 
  • Biden will also have a recession on its hands as well. What will the response be? A huge stimulus package
  • Next time will be so big and will cause a dislocation and cause (more) inflation
  • $165 trillion dollars of unfunded liabilities
  • If we try to fund these liabilities; that will take 70 years to fund these; we'd be in a recession/depression for 2 or 3 generations
  • We'll have to deal with these liabilities: 1 we restructure or 2, devalue them.

Q: What is your Position in bonds?

  • There is a case for deflationary ultimate outcome here that could happen
  • I want to own want to own 30year treasury bonds! 
  • doesn't look like it's attractive but that is the one thing and cash, frankly, can protect you from a deflationary
  • I like cash
  • I like something like the TLT ETF that can go back down to 1%, will give you some protection
  • We like short maturities; it's very illiquid; the Fed not doing bond buying after this month
  • In general, we have a less liquid bond market
  • Junk bond spreads are widening out substantially because treasuries yields have rallied
  • Everything is negative except commodities

Q: Mid term Elections & Predictions:

  • Next president? It won't be Trump or Biden
  • It will be one of the biggest blowout disasters for an incumbent administration
  • They have gotten a bump on the patriotism angle with Russia/Ukraine; but the inflation numbers at grocery store, gas stations, people are not happy
  • Next president, as we move forward into this end game of our deficit-based economy, you can see another party emerge (as both parties, Democratic and Republican, are fractioned into 2 or 3)
  • We might have not an electoral college winner and three candidates and split it and determined by congress; that could happen

Q: Stock market; what's happening next?

  • We are at a short-term low
  • When I see these thrusts downward, I watch the VIX
  • VIX shot higher, approaching 40; sign of a short-term bottom and we'll get a reflex rally
  • We'll see some commodities down days; and will see some stock markets some up days
  • EM outperforming US stocks: that will be a trend for some time to come
  • Investors should consider a shift out of US stocks into EM stocks, transition slowly
  • We will be talking about the dollar's currency reserve status waning in the years to come

Q: Oil? Where is it going?

  • $200 a barrel, it tops out
  • Yes, it will this year. It's on a tear.
  • We haven't even talked about an embargo.
  • We acted on hating fossil fuel without a plan to transition to other sources of energy and now we have a shortage.
  • Ultimate outcome: People want action, not empty words, to bring gas prices down.
  • This administration does not inspire confidence when we make alliances with horrible actors instead of supporting our own resources.