“Actually I did just put a short on the S&P at 2,863”, Jeff Gundlach told CNBC’s Scott Wapner, during an April 27 chat.
That was – checks notes – six weeks and roughly 12% ago. To be fair, he did offer up some of his signature verbal hedging. “I don’t think it could make it to 3,000, but it could”, Jeff added. “I’m not nearly where I was in February when I was very, very short”.
“Is that now off the table… because of the Fed?”, Wapner asked at the time, referencing Gundlach’s contention that US equities could retest the March lows. “No, it’s not at all”, Jeff said, without missing a beat. “In fact, I think we take out the lows”.
We did not – revisit or take out the lows, that is.
Late in March, during a webcast called “A Tale Of Two Sinks”, the usurper of Bill Gross’s throne used the visual below to make his point. During very bad routs, things do tend to get worse before they ultimately resolve.
But this time is different. And while that phrase may well be among the most dangerous in the English language, the fact is, we’ve just witnessed the biggest bear market rally in history.
At this point, it is by no means clear that it makes any sense to keep calling this a bear market, although you’re reminded that Gundlach has variously insisted we’ve been in a bear market since December of 2018.
Gundlach held another webcast on Tuesday, and it featured a truly silly image of Jerome Powell’s head badly Photoshopped onto the body of Superman, who appears to be flying through some starless, dark void.
Among other things, Gundlach cites the same charts from Gerard Minack that Albert Edwards used a few notes back.
When you combine FAANG with FAAMG to get FAAANM (Facebook, Apple, Amazon, Alphabet, Netflix and Microsoft), you end up explaining most of the outperformance in US stocks, as well as the profitability and top-line growth disparity with global equities.
Basically, when you strip those names out, corporate America hasn’t done much better than “corporate world”, if you will. (There’s much more here.)
Gundlach also cites a set of Deutsche Bank visuals I highlighted in “Robinhood, Mega-Cap Mania, And Peak Perpetual Motion“, specifically the chart below, which shows that while the number of retail accounts has surged across all stocks, the gap between the number of accounts holding mega-cap growth names and the rest widened materially during the panic.
Beyond those charts, Jeff largely “played the hits”, so to speak. The full presentation is more than 75 slides long, but it’s mostly a recap of familiar themes.
“Jay Powell has said he will expand the balance sheet to infinity if need be”, he remarked. “Once [30-year yields] move above 2%, the Fed is going to find a blip showing up on their radar screen and they will start thinking about how high do they want rates to go”.
There’s nothing novel about that observation. “Obviously yield-curve control is lurking in the background”, Gundlach went on to muse. “I certainly do expect that Powell would follow through on controlling the yield curve should the 30-year rate really get unhinged”. As a reminder, there are still plenty of questions out there around which part of the curve the Fed will target.
Gundlach trotted out the dollar versus deficits chart, a visual he refers to habitually.
He’s bullish on gold, for whatever that’s worth. “It certainly doesn’t seem to have a lot of downside on it”, Jeff said. “Shorter-term, I’m neutral. Longer-term, I’m unequivocally bullish”.
Some might call that obfuscation disguised as a prediction.
Gundlach is also worried about white collar-workers. “I could easily see layoffs that hit more than $100,000 per year people”, he warned. “There won’t be many openings for [them] and these folks may take a pay cut”, he added, before elaborating as follows:
What people may have learned for white-collar services jobs, in particular, during the work-from-home lockdown situation, at least in my perspective – I’ve talked to a lot of my peers on this – I kind of learned who was really doing the work and who was not really doing as much work as it looked like on paper that they might have been doing.
If a $100,000 white-collar worker gets laid off, I think that they just stare in the mirror in the morning with just fear in their eyes looking at their own eyes because what are you going to do? A lot of people don’t have any savings, not enough savings. If a certain swath of the employment-population has a significant layoff in the echo of the pandemic, which I think is coming, then they’re probably going to be looking for a job and there won’t be many openings relative to the unemployment pool with that type of a skillset.
So, Jeff is concerned about a wave of disillusioned, newly-jobless, high-earners, who will be left with nothing but their own sullen reflection in the bathroom mirror. It’s laughably overwrought, even if it’s some semblance of true.
Gundlach took some time to highlight familiar deficit charts (which he does in virtually every webcast), and warned of “kryptonite” for Powell’s Superman. He had a visual for that too.
As for stocks, Gundlach sees equities retreating from what he called “lofty” levels. He also accused the Fed of violating the Federal Reserve Act by buying high yield ETFs. That’s not new. Jeff has made the same accusations on social media.
Negative rates, he cautioned, are also “kryptonite”, and if tried in the US, they’ll be “fatal”. You might recall that some blamed Gundlach’s “fatal” NIRP tweet for STIRs pricing in negative rates last month.
I suppose the idea of US equities revisiting the lows seen during the worst days of the COVID panic isn’t totally “off the table”, where that means impossible under any circumstances. But with the Nasdaq 100 having hit new record highs and the S&P having rallied nearly 45% since those dark days in March, it’s fair to say Jeff was wrong.
He would never admit as much, of course, but if he did, he could take solace in the fact that he’s in good company when it comes to underestimating equities’ capacity to keep running on a steady morphine drip of Fed liquidity.
If you wanted to, you could say Jeff correctly predicted the recession last year. But that assumes you ignore all the other occasions prior to that when he made similarly dire predictions that didn’t ultimately pan out.
The bottom line: There’s nothing to see here, folks. Move along.
That was a bit harsh, H. The photoshop jibe, I mean. The rest was spot on.
Well, even as the rally grew in April, a reversal to new lows was certainly a scenario one had to factor in. I suspect many investors (moi being one) partly hedged their long positions with a large cash position, a market short, etc. I wouldn’t be surprised if Gundlach held long positions against whatever market short he put on. If he owns his own fund, that was a long.
Some middle management workers take the work done by an “entry/junior level worker“, remove the name of the “entry/junior level worker” from the work, insert their own name on the work and submit that work to upper management.
This is definitely happening and with everything being done and shared on line, the truth of who is actually doing the work and who is just inserting their name on other people’s work is becoming very obvious.
I have no statistics on this, but it is not an isolated situation.
Too much uncertainty on covid-19, earnings, unemployment, and consumer sentiment at this juncture.
Too many office/retail tenants vacating space prior to end of lease term, not paying full rent, renegotiating give backs of space to landlords and lower rents. Lending criteria has gotten a lot more onerous and appraisals on commercial properties coming in way lower than in February, 2020- due to covid-19.
Slow motion train wreck in process. I am watching from a safe distance.
As regular readers know, I don’t have anything against Gundlach — he’s just an objectively funny/amusing guy, whose tweets, webcasts and TV cameos are highly amenable to satire, so I indulge.
FWIW, I think the big story is still Covid. TX one of the earliest to open up and hospitalizations (not just cases) are trending up again. Plus no exit strategy for the Fed if the market falters one bit.
https://www.washingtonpost.com/health/2020/06/08/14-states-puerto-rico-hit-their-highest-seven-day-average-new-covid-19-infections-since-june/
When Heisenberg says “different this time”…?
I try not to be too critical of Gundlach because he does go out on a limb and predict in some cases what seems obvious and spite of that his conclusions still don’t pan out…It is easy to be criticized when one makes concrete assessments in uncharted waters… witness Buffet and Druckenmiller both..This point in time is only different because the easy (logical ) choices have been exhausted in the process of creating the scenario we are in…
This economy it seems is in a cycle with a long time frame but a cycle none the less….
“When you combine FAANG with FAAMG to get FAAANM (Facebook, Apple, Amazon, Alphabet, Netflix and Microsoft), you end up explaining most of the outperformance in US stocks, as well as the profitability and top-line growth disparity with global equities.”
This has been the case for some time now and it scares the hell out of me because the growth in these stocks cannot continue in an economy growing on average at 2% .. unless, of course, these six companies will be the only six in the economy in thirty years. The trend does, of course, illustrate an important principle we are prone to forget. You can never beat the market with an index fund. Passive investing in SPY or any other such fund will always fall short because the benchmark is the investment, from which fees will be extracted. If beating the market is your thing then you have to bet the horse with the best odds and put all your chips on it (and a couple of its pals). Even then, in the long run you will lose. You must change horses or follow yours to the glue factory.