Gundlach: Fed Will Be In “Panic Mode” When A Recession Hits

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Zero Hedge: Gundlach is the founder and chief investment officer of Los Angeles-based DoubleLine Capital. He spoke to investors via a conference call at 4:15pm on July 23. The focus of his talk was DoubleLine’s fixed-income closed-end funds.

Gundlach predicted a “high likelihood” of a recession before 2020 election. The leading economic indicators (LEIs) also point to a weakening economy. As rates rise, so will interest costs incurred by the government, which would translate to further weakness in the private sector. The underlying problem causing the spiral is the large and expanding federal deficit, according to Gundlach.

“We’re starting out before the recession with a huge debt problem,” he said, “that will grow faster in a recession.”

In response, Fed policy has become more “evolutionary,” he said. It has been talking about quantitative easing (QE) as a “normal” policy tool, instead of one whose use is restricted to crises. The Fed is softening people up, he said, so that if rates rise, it will do QE and then emulate the Bank of Japan and other central banks to take rates negative.

A reason rates are so low is that the Fed is “hedging its bets,” Gundlach said. Rates will go up first as the economy weakens and be engineered down. This pre-emptive rate reduction could leave the Fed with nowhere to go, as a recession demands ways to stimulate growth. more …

Opinion: Keep in mind that in normal times the Fed likes to keep interest rates as high as possible to be a stimulus tool to lower them in case of a recession. If interest rates are low and a recession happens, the Fed’s only recourse is to print more money (QE).

Also keep in mind that the Fed controls short term interest rates. It is possible that if the economy weakens and long term rates rise, the Fed will use the newly printed money to buy massive amounts of bonds, and force interest rates down to zero like 2008-11.

It is all about the US national deficit/debt. It is too big and growing too fast and all anyone is talking about is Ilhan Omar, Rashida Tlaib and Robert Mueller.

Of the 4 horsemen of the apocalypse that begin the tribulation, one, or 25%, is about money and economics.

  • The first horseman introduces a counterfeit Christ on a white horse: Rev 6:1-2
  • The second comes on a red horse taking peace from the earth: Rev 6:2-3
  • The third is a black horse bringing economic collapse: Rev 6:3-4
  • The fourth is a pale horse that brings death and disease: Rev 6:5-6

Ezekiel 33:6 provides our job description:

“But if the watchman sees the sword coming and does not blow the trumpet, and the people are not warned, and the sword comes and takes any person from among them, he is taken away in his iniquity; but his blood I will require at the watchman’s hand.”