“The Fed Is Broke”—Gundlach Likes Gold, Fears “Expanding Wars” Most

The comments below are an edited and abridged synopsis of an article by Tyler Durden

Last week, DoubleLine Capital’s founder and CEO Jeffrey Gundlach said that the US banking system collapse and bailout enjoins Europe’s banking crisis, leaving central banks’ inflation-fighting plans in question.

“The Fed Is Broke”—Gundlach Likes Gold, Fears “Expanding Wars” Most - BullionBuzz - Nick's Top Six
European energy crisis after Russia’s invasion of Ukraine. Russia world’s largest exporters of natural gas

The market has dovishly adjusted to the banking crisis overhang and Gundlach suggests that Fed Chair Jay Powell continues hiking to keep up the Fed’s inflation-fighting efforts, due to credibility concerns.

But, speaking with Jennifer Ablan of the Financial Times, Gundlach warned of an imminent recession—within the next four months—as the yield-curve suddenly steepens.

Gundlach pointed out that, at 3.6%, the unemployment rate just crossed back above its 12-month moving average, which has been a reliable indicator of looming recession.

Gundlach called Silicon Valley Bank’s failure “a rate policy collision with stupid accounting rules” for banks, but warned that the Fed’s reaction was inflationary and antithetical to their inflation-fighting stance.

The stock market is currently in a bear market, he said, and he would sell into any rallies.

Gundlach predicts the S&P 500 Index will trade down to 3,200 and reminded investors that “the goal for 2023 is survival, and losing as little money as possible.”

What worries Gundlach most is spreading geopolitical conflicts, but he was clear on the biggest financial risk:

“The Fed is broke. [Its] balance sheet is negative $1.1 trillion. There’s nothing they can do to fight any problems except for printing money… The Fed used to send money to Treasury. Now Treasury sends money to the Fed. We’re at this point in time where we don’t have any road left to kick the can on our mismanagement of finances and monetary policy.”

His suggestion? Buy gold. If government spending continues, he predicts “the dollar will collapse under the weight of the deficit. I think gold is a good long-term hold, gold and other real assets with true value, such as land, gold and collectibles.”

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