October 4, 2011
Speaking at a luncheon in New York last week, Jeffrey Gundlach, the founder and chief investment officer of DoubleLine Capital, gave investors advice on how to survive pending crises at home and abroad. After outlining the current state of U.S. debt and tax policy, Gundlach advised against European investments, favoring the U.S. dollar and owning U.S. government bonds as a hedge against credit.
Gundlach’s outlook has not changed dramatically since his comments six weeks ago, when he argued that markets were in a “state of panic.” He said then that the increased threat of defaults on sovereign debt in Europe and economic problems at home were thrusting markets to the cusp of a global banking crisis.
According to Gundlach, one of the main problems we are facing is “debt all over the developed world.” Using the U.S. as a case study, Gundlach examined the relationship between gross federal debt and the national debt ceiling over the past 100 years. He found an “eerie similarity” between the two categories. “Obviously, what is going on here is the debt ceiling is just bogus and has been raised on an ‘as needed’ basis.”
While the U.S. government has made many attempts to solve the national debt problem – including borrowing, nationalizing banks, increasing spending, monetary policies like QE1 and QE2, forgiving debt, and cutting taxes – Gundlach believes that each solution has been haphazard and unintelligent.
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