Over the past year, heated debates have taken place in Wall Street offices and executive boardrooms across America. The world’s top investors, economists, and business leaders can’t help but decide that a resilient labor market and strong consumer spending will enable a “soft landing” for the economy — one where inflation can be overcome without recession. Or if sky-high prices and rising interest rates mean a “mild” recession, a “garden variety” recession, or even something similar to “another variant of the Great Depression” on the way.
But the Founder and CEO of Doubleline Capital Jeffrey Gundlach told Yahoo Finance Wednesday that the debate is fruitless, the outlook for inflation is “dark,” and Americans should prepare for any economic downturn.
“People always ask this question: ‘How is the recession going to play out?’ It doesn’t matter. As long as we’re going into a recession, you need to have a certain level of protection. If it rains half an inch, you need an umbrella. If it rains two inches an hour, you still need an umbrella,” said the billionaire investor known as the “Bond King”. “In any case, you need an umbrella.”
Gundlach has warned that a recession could be more than a year away, saying that the Federal Reserve’s rate hikes will increase costs for consumers and businesses already struggling with inflation.
On Wednesday, bond market veterans added that fast borrowing costs could lead to defaults at some US companies as the economy slows this year. As fortune previously reported, many of the so-called “zombie companies” have been able to survive off cheap debt over the past decade, using the junk bond market to fund unsustainable business models.
“What’s going to happen if you get part of the economy in a recession and the payments to these companies are going up? I think the answer is going to be more standards,” Gundlach said. “You put that together with [slowing] economy, with poor credit quality, and we can see some interesting and painful results coming in the next recession, whether it’s severe or not.
After Gundlach founded DoubleLine Capital in 2009, which now manages about $100 billion in assets, he quickly beat out rival bond fund managers, and was anointed the “Bond King” by Barron’s in 2011—which has been shortened to “Bond King.” The title was asserted when “Bond King,” PIMCO founder and former bond fund manager Bill Gross, famously told Gundlach in 2014 that he was the Lebron James to Gross’ Kobe Bryant.
Gundlach’s status on Wall Street today is undeniable, and he gave advice to investors on Wednesday, arguing that US Treasuries could be a safe haven amid a “protracted bear market” in stocks. He said DoubleLine has increased its treasury exposure, reduced its credit exposure, and improved the quality of its bond portfolio over the past year.
“I always say, don’t listen to what I say, look at what I do. And we start de-risking, if you will, in the fourth quarter of 2021,” he told Yahoo Finance, adding that he was “preparing for a hard landing” for some time.
Learn how to navigate and build trust in your business with The Trust Factor, a weekly newsletter that examines what leaders need to succeed. Log in here.