Gundlach warns: Stocks could 'take out' the March lows, economists' GDP forecasts are too optimistic
Yahoo Finance’s Alexis Christoforous, Brian Sozzi and Julia La Roche discuss Jeffrey Gundlach, a billionaire bond investor, and his thoughts on how the economy will fare in April amid the coronavirus outbreak.
Video Transcript
ALEXIS CHRISTOFOROUS: I want to bring in Julia La Roche now because she has a piece out on the Yahoo Finance website this morning about the billionaire bond investor Jeffrey Gundlach. And Julia, he is saying that we're probably going to retest the lows, and he's actually likening it to what we saw in 1929.
JULIA LA ROCHE: Yeah. Well, Alexis, Jeffrey Gundlach is one of these really closely followed bond investors running DoubleLine Capital, that $150 billion bond fund out in LA, and one thing that he's well-known for are his webcasts. He does them for his funds. He also does his famous "Just Markets" webcast to kick off the year.
Now, yesterday afternoon, he did a special "Markets" webcast-- it was not originally on the schedule-- just going through what is happening. He's someone who likes charts. He pulls out these big decks and goes through them, and he says that he thinks that we might get something that resembles that panicky feeling some time in the month of April. That's one of his predictions, and he did pull up some charts. One of those, in particular, was comparing the S&P 500 index now to 1929, 2000, and 2007, and what we were seeing in the markets back then. And he said, you know, unfortunately, what's going on right now looks the most like the 1929 period.
He also went on to explain, just looking historically at patterns-- these are things that you often hear about in the financial media by the way-- that usually you'll have a market crash before a very sharp snap back, followed by another move down, maybe before you get put in a more enduring low, and that he would bet dollars to donuts-- his words by the way-- that the lows that we saw in March will get taken out. He says, will this happen in the near term? Who knows. But he thinks that it might-- the market has really reached what he calls a resistance zone right now, and it continues to act, in his opinion, quote "somewhat dysfunctionally." He went on to explain some of the things that he's seen and what he's hearing from his own traders when it comes to the functionality in the markets right now.
He also highlighted that in 1929, the market basically went sideways for almost a year before the economy worsened, and at the bottom, finally dropped out. He is saying that he hopes that doesn't happen here, but of course, that is dependent on the efficacy of these emergency rescue moves that we've seen from the Fed, the stimulus, but he also says look, telling people that they don't have to pay taxes while you're ramping up to $2 trillion headed to $4 trillion in incremental spending, he says, I don't know. It just seems like you're looking at a real crisis in terms of the confidence in government finances. I'm worried that could overtake.
He also went on to highlight, Alexis, those GDP forecasts that we are seeing from the big banks. You know, basically at this point, when you're thinking about the coronavirus, COVID-19, and the impact on the economy, a recession is pretty much the consensus out there, yet some folks on Wall Street are looking for-- OK. Second quarter is just going to be decimated, then you'll see this sharp bounce back in the third quarter. He calls that highly, highly optimistic. He highlighted, just for the full year, what the expectations are, and at this point, he's taking the under, even on the one that looks the worst, which was coming out of Goldman Sachs, compared to the other ones. But he says, look, even the ones that are negative one, that kind of range for GDP, he calls it highly improbable.
He also brought this up. I thought this was fascinating. This whole idea of nonessential business versus essential business, and he makes his case that, look, all businesses in a day are essential. They're essential to the person running it. This isn't a matter of who's open and who's not open, he's simply making the case that look, if you're a business person and you run a flower pot kiln in the backyard, and you sell on Main Street, you're going to be feeling the pain. And he's making this case that there's going to be some knock on effects for businesses that are closed.
So these are just things to pay attention to, things to look for, and another thing that stood out to me, Alexis, was he highlighted a Ben Bernanke quote on CNBC, kind of likening this period, the shutdown that we've seen, to a snowstorm. Now, Gundlach's a native of Buffalo, New York. He certainly knows snow storms, and he said, look, this is not some natural disaster event. He says at this point, we'll probably be shut down for seven weeks. That's 15% of the year, and he said, you know, this kind of looks like a depression scenario. He's not outright calling it a depression at this point, but certainly something to keep an eye on.