, a podcast hosted by Doubleline's deputy CIO, Jeffrey Sherman."But then what people don't understand, is it stays inverted for a while, and it starts steepening right before the economy goes deeper into a negative momentum situation."The US yield curve has been inverted since March, but has recently started to steepen. This would normally be a welcome sign, as a steepening yield curve coincides with higher growth prospects.
Gundlach watches the 5- and 30-year US Treasury spread like a hawk, and its steady steepening as of late has been adding fuel to the fire. He continued:"It's like the bond market sniffs it out, and says 'Ah ha! The Fed is going to be easing like crazy,' and that's going to obviously be in response to what we believe is going to be further economic downside momentum."
In short, Gundlach thinks the Federal Reserve is in a lose-lose situation. If they cut, they'll exacerbate the rapid drop in rates, and if they don't, markets will turn into a calamity. Either way, it's not looking good. "You get this strange situation where the yield curve model is not truly fixable," he said."Your attempt to fix it, each and every time, has coincided with a recession actually showing up."
It's his job to try to scare equity investors. That's how he makes his money.