Jeffrey Gundlach Says U.S. on Pre-Election 'Recession Watch''
Comment of the Day

September 12 2019

Commentary by Eoin Treacy

Jeffrey Gundlach Says U.S. on Pre-Election 'Recession Watch''

This article by Suzy Waite and John Gittelsohn for Bloomberg may be of interest to subscribers. Here it is in full:

The likelihood of U.S. recession before the 2020 election has grown, based on changes in the Treasury yield curve, according to Jeffrey Gundlach, the billionaire money manager and chief executive officer of DoubleLine Capital.

“We should be on recession watch before the 2020 election,” Gundlach said Thursday in London. “We’re getting closer but we’re not there yet.”

The odds of a U.S. recession before the election are 75%, said Gundlach, whose Los Angeles-based firm oversees more than $140 billion, reiterating a prediction he made in August.

The best signal of a recession is not an inverted yield curve, the money manager said. “It’s the inversion occurring and then going away.”

Yields on 2-year Treasuries exceeded those on 10-years in August, forming an inversion, before flipping back this month.

In other comments, Gundlach said:

* He’s turned “neutral” on gold, one of his previously recommended investments. “It’s had a big run.”

* The U.S. and China are unlikely to reach a long-term trade pact before the presidential election.

* It’s a “terrible time” to bet on U.S. housing and homebuilder stocks because of high inventory and weak demand.

Eoin Treacy's view

The US yield curve spread inverted in August and is now mildly positive. The peculiarity of the spread is it is a reliable lead indicator for US recessions, but the corresponding spread does not provide a reliable lead indicator for other markets even though the rationale for why it should lead is the same.

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