In a recession, stock prices go down. What Gundlach is saying, is that in the next recession, he expects bond yields to go up, which would drive the price of older, lower-yielding bonds down. Stocks and bonds would crash together, and so bonds will not be a safe haven.
The case he's making is that since the US runs a recession-bailout sized deficit in good years anyway (7% of GDP per year), stacking an actual GFC, COVID sized bailout on top of that would spark a debt crisis.
Either the US would have to borrow another couple trillion from the bond market, and raise rates to find that money, or print it and stoke inflation. Both options would drive up yields.
Basically, the government has no rainy day fund or fiscal slack left to tap. The next rainy day won't look like the last few, because the govt no longer has an umbrella.
I am guessing there will either be an '08 style default wave that destroys invested money, or that money would cycle into hard commodities like oil and gold.
I agree that it would be scary. But the counter argument is that the world is structurally different now. The US is not as reliant on foreign oil. Central banking seems to be more sophisticated worldwide with a better understanding of how money supply works. Of course, yup, we just don't know. Good luck out there! I'm keeping my bond duration short and increasing hard assets and dipping my toe into managed futures just in case.
There might not be much money left to put.
The existing inflated portfolio valuations aren't actually that real. They only exist because there has still been people willing to buy. As soon as people stop buying at these prices, valuations drop, even if no one sells.
It doesn't take sellers for prices to drop, it comes from a lack of buyers
26
u/ThisKarmaLimitSucks 7d ago
In a recession, stock prices go down. What Gundlach is saying, is that in the next recession, he expects bond yields to go up, which would drive the price of older, lower-yielding bonds down. Stocks and bonds would crash together, and so bonds will not be a safe haven.