The King of Bonds says the Dollar is Doomed.

In February 2011, Barron’s magazine called Jeffrey Gundlach the “King of Bonds”.  Since then, he has been one of the most respected voices on Wall Street and runs a hedge fund called DoubleLine Capital, which manages Over $130 billion.  He was interviewed and an article was written about him in Market Watch on July 16, 2021.  The article was titled, “Bond King Jeff Gundlach says there is a Simple Reason Treasury Yields are so Low Even as Inflation Surges.”  It was written by Mark DeCambre. 

“Bond guru Jeffrey Gundlach of DoubleLine Capital said it is no mystery why U.S. Treasury yields are anchored lower despite evidence that inflation is rising in an economy attempting to rebound from a stultifying pandemic.

Speaking to CNBC’s Halftime Report on Thursday, Gundlach said that the financial system remains awash with liquidity, i.e., willing buyers, who seem eager to purchase benchmark government debt, a factor that has been a key reason in driving prices up and yields commensurately lower.

“Yields are this low because of all the liquidity in the system”, Gundlach told the business network.

In theory, yields should be higher because the Federal Reserve has signaled that it is considering ending its asset-purchase program, which includes some $80 billion in Treasury’s a month. The Fed’s quantitative easing, or QE, has helped support financial markets during the worst of the pandemic-driven disruptions last year.”

Gundlach is suggesting is that because the Federal Reserve is buying so many of our bonds, they are keeping interest rates artificially low. The federal reserve did not do this in the 1970s and 80s and interest rates went to 12 to 14%.  He is suggesting that if the Federal Reserve stopped the asset purchases, then rates would be much higher.  That plays into his second part of the interview about the value of the dollar.

“Gundlach also said that he has been predicting a higher dollar in the past few months but in the longer term described the dollar as “doomed.”

“I don’t want to be overly dramatic, but I will use the word ‘doomed,'” he said.

“Ultimately, the size of our deficits—both trade deficit, which has exploded post-pandemic, and the budget deficit, which is, obviously, completely off the charts—suggest that in the intermediate term—the dollar is going to fall pretty substantially, and that’s going to be a very important dynamic,” 

What makes this significant for me is the fact that it has seemed like I have been one of the only people in the world who has talked about the debt clock and the size of our deficits being problematic for the dollar. Now that somebody like Jeff Gundlach has started to spread the word, it will become more noticeable.  Maybe he is reading our newsletters!?

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