Markets are intently focused on the possibility that investment grade credit is set to usher in the next crisis, and you know what that means, right?
That means it’s time for Jeff Gundlach to repeat what everybody else has been saying for months and pretend like it has more meaning now that he’s said it.
As a reminder, this is Gundlach’s modus operandi. He listens to what everybody is talking about and then he shows up on CNBC or grants an interview with any mainstream financial news outlet that’s not the Wall Street Journal (who Jeff swears was in on a conspiracy to tarnish his reputation last year), and proceeds to suggest that he’s saying something nobody has ever heard before.
And look, I’m not being needlessly derisive. I can point you to countless examples of Jeff doing that and sometimes, it’s actually a positive development to the extent the weight his voice carries draws attention to something important like, for instance, the fact that the U.S. is running an exceptionally noxious mix of monetary and fiscal policies which Gundlach correctly described this year as a “suicide mission”.
Predictably, Jeff is now weighing on the great “BBB debate” and, equally predictably, he doesn’t have anything to offer that is any semblance of fresh.
“Stay out of investment grade bonds”, Gundlach told Reuters, during a Monday phone call that he probably initiated.
Does Gundlach have some incisive analysis to offer when it comes to the market’s topic du jour?
Why, hell no. Here’s Reuters from the linked post:
Gundlach said investors should avoid investment-grade bonds. They are riskier than they used to be because “triple-B” rated credit – the grade for securities just above “junk” status – has increased dramatically since 2008, from 20 percent of all investment grade credit to approximately 50 percent today, he said.
You’ve got to love this: “…he said”.
I mean, yes, he did “say” that, but the way it’s written makes it seem like Jeff came up with those figures on his own as opposed to say, reading any of the dozens of articles written about BBBs over the past two months.
But listen, Jeff wasn’t sure Reuters was picking up what he was layin’ down over what I’m sure was a truly ridiculous phone exchange. In case the dunces over at Reuters weren’t on the same page with him, Gundlach elaborated:
Because when rates start to rise in earnest, God forbid you get a downgrade. It’s amazing how people have been copacetic about the credit situation.
Big word alert! Jeff knows what “copacetic” means! Or maybe he doesn’t, because I’m actually not sure it works there.
But let’s just give him the benefit of the doubt and assume he means “upbeat” and/or “calm”. That simply isn’t the case. In fact, “people” are the very opposite of that when it comes to the “credit situation.” As our buddy Owen Davis pointed out over the weekend, “people” are literally freaking out.
And what about markets themselves? Are they “copacetic”? In a word: No.
IG spreads blew out by the most for any week since 2016 last week and widened out some more this week.
And this is hardly a recent phenomenon. IG is having its third-worst year since 1975, a fact that’s been so well documented over the past month that people are sick of hearing about it.
And how about junk? Is there a lot of complacency going on there? No.
In fact, it looks to me like mom and pop’s favorite liquidity-mismatched high yield ETF had fallen for nine straight days headed into Wednesday (today it’s on pace for its best session since early this year in what is almost assuredly a dead cat bounce).
Meanwhile, high yield spreads mimicked their investment grade counterparts last week, blowing out the most in years.
Finally, here’s CDX for both IG and HY (you’re looking over on the right-hand side, where you can clearly see things starting to widen out):
So, I don’t know you guys. I’m not seeing the complacency here that Gundlach seems to be convinced is endemic among market participants he imagines are asleep at the proverbial wheel.
Read more on credit market jitters