Jeffrey Gundlach says bonds are ‘wickedly cheap’ compared to stocks – and offers a way to earn a 9% return without much risk – MarketWatch | Jewelry Dukan

You can forgive Jeffrey Gundlach, a longtime Buffalo Bills fan, for having the NFL on his mind now that the team he supports looks like the Super Bowl favorite. The chief executive of DoubleLine Capital says he recalls an advertisement for Crown Royal Whiskey in which a referee told the drinker to take a water break.

“The slogan is ‘Stay in the game,'” said Gundlach, in a Twitter Spaces conversation moderated by Jennifer Ablan, Editor-in-Chief of Pension and Investments. “[The Fed] started partying – which is a euphemism for getting dressed – one shot, two shots, three shots in a row and now three more…like dude, have a water you know? Slower.”

Gundlach says there is a serious risk that the Fed will overshoot and overshoot just as it has overshot, especially since it is also reducing the size of its balance sheet through quantitative tightening. “Since they’re trying to get [inflation] 700 basis points down, the breach could be even bigger,” he says. “Maybe the CPI moves to minus 4% or minus 2%.”

He says that speaks to the bond market with inflation between 8% and 9%. “Why would anyone buy a 3.50% 30-year Treasury BX:TMUBMUSD30Y
? The only logic to square the circle is that inflation will overshoot to the downside.”

Gundlach says the S&P 500 SPX
will drop to as high as 3,000 and maybe “3,400 – either way lower than today”. And perhaps unsurprisingly, the man known as the Bond King sees plenty of opportunity in the fixed income space. “Bonds are wickedly cheap compared to stocks,” he said. “And that’s from someone who said in January that stock markets are way overvalued but cheap for bonds. No longer.”

“This is a very good time to buy bonds and one of the things I know is that nobody wants to do that,” he said.

A bank loan fund makes sense for investors who are not willing to take risks. He said the spread to short-term interest rates is about 300 basis points. So if the Fed hikes rates to 4%, the investor gets a 7% yield but can buy the bonds below 95 with a default rate of less than 1%.

“It goes wrong if the Fed cuts interest rates back to zero and then you have less income, but right now it’s a very easy way to generate income,” Gundlach said.

Hear from Ray Dalio at the Best New Ideas in Money Festival on September 21-22 in New York. The hedge fund pioneer has strong views on where the economy is going.

The market

US Stock Futures ES00

higher before the Fed decision. Bonds, Gold GC00
and oil CL
caught an offer due to concerns about Russia’s troop mobilization. The yield of the 10-year Treasury BX:TMUBMUSD10Y
slipped to 3.54% and the Dollar DXY
marched higher.

The Buzz

Russian President Vladimir Putin ordered a partial mobilization of the reservists, accused the West of nuclear blackmail and implicitly threatened the use of nuclear weapons.

The Federal Open Market Committee rate decision is at 2pm EST with the rate hike expected to be 75 basis points. Deutsche Bank economists expect the dot plot, released concurrently with the FOMC statement, to return a median Fed Funds forecast of 4.1% for 2022, a forecast of 4.3% for 2023 and a forecast of 3.9 % for 2024 shows. The press conference with Fed Chair Jerome Powell begins at 2:30 p.m

Before that, existing home sales are due at 10:00 am Eastern time.

dr Doom – Nouriel Roubini – says stocks could fall 40%. (subscription required)

General Mills GIS
raised its outlook following first-quarter results and the completion of construction company Lennar LEN
reports third quarter results.

Microchip manufacturer Micron Technology MU
was demoted to neutral at Mizuho and launched on hold by Stifel.

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