Let's get more on today's big rebound and where one of the world's great investors sees things heading from here. Jeffrey Gundlach is the founder, CEO, and CIO of DoubleLine Capital. Joins us now for our CNBC exclusive. It's good to have you. Thank you for coming on today.
Good to see you, Judge. I missed you last Wednesday.
Missed you as well. But you know what? You've had the opportunity now to let everything marinate a little bit. So it's, I think, a great time to still catch up with you and we'll get to all things Fed in a moment obviously, but I would like to get your initial thoughts just broadly on these markets because there's so much going on. You had the headlines, you know, this morning that move the market. Just, you know, just tell me from your perspective where you think we are right now.
I thought what was really interesting about the decline of the last few weeks in risk assets that the VIX index never really got above 30, which was really strange. I heard a lot of guests on CNBC saying, well, if the VIX gets above 40, you know, maybe that's your signal that things are washed out and it's time to buy. But in spite of all of the volatility, we didn't really see the VIX go up. Meanwhile, the spreads on fixed income have definitely been on the march. It doesn't get a lot of play because it was swamped by war headlines and private credit kind of smashups, but high yield spreads have risen by something like 60 basis points, maybe at the wide 70 basis points from where they were. And all corporate credit is definitely widening. Emerging markets have been widening. What's been the safety place is what we expected would be the safety place which is things like asset-backed securities, commercial mortgage-backed securities. They've actually been some of the most stable asset classes. So I feel like today's action's very good. I mean, we closed very weakly in the market on Friday, pretty much on the lows and some people I heard Tom Lee saying some institutional clients were looking to short the market at the open today. Doesn't look like that happened. If they did, they're regretting it now. But the market, I think, is in a revaluation phase. And I believe that money's being... it's hard to make money this year. It started out that people are making money in foreign markets and in commodities, but while commodities and gold specifically are still up, they're not up very much. We were talking about this in our strategy meetings the last couple of weeks and I was saying, you know, I really think for the long haul, I still want to be in commodities and I still want to have a gold position, but my enthusiasm for gold was definitely exceeded last year by the market's actual action. You might remember, Scott, that I talked about gold would go above 4,000 last year, and we talked about that when it was well below 4,000. Well, I was not enthusiastic enough, I guess, because it went up to almost 5,500, but now we're back down at about what I thought would be the target for gold as a high point for the year. But at this level, I think it's a very good opportunity to add to gold and to add to commodities. I'm not terribly enthusiastic about credit or stocks at this point. I don't think they're cheap enough. I think I would want to see the VIX go higher to signal a real washout on the stock market.
You know, so you slashed your gold exposure in January, but you largely have remained bullish and you'd buy it right here thinking that whatever has taken place there recently is short-lived.
Yeah, I think so. Gold was so wildly overdue for a correction. I mean, it went from 2,000 to 5,500 almost in a straight line and it just got kind of overbelieved, I think, at that height. But I think this is a very good point for buying commodities and gold. I like it a lot better today than I did two weeks ago because I think it's in a bull market and you've had what's truly a correction and the Bloomberg commodity index broke down below its 50-day moving average, now its 100-day moving average. I really believe the 200-day moving average which isn't terribly much lower than where we are today should serve as support. So, it started out to be a pretty good year for fixed income, but thanks to the rise in interest rates and the widening in spreads, most bond portfolios are now modestly or even more, if you're more credit exposed, more like moderately negative on a year-to-date basis. So I think this is really a good opportunity to think about adding to the types of fixed income investments that we've been talking about now for over a year which remains to be not really the long end of the market although since the Fed meeting last Wednesday the long end has actually done a little bit better thanks to this problem with the war which has strengthened the dollar and therefore and gone along with some higher interest rates. So, I mean, we talk about at every Fed meeting afterwards, I talk about the word of the day or the phrase of the day of the meeting. And what I thought about last Wednesday was what really Jay Powell was hammering on was we don't know. He said we don't know. We just don't know many, many times during the press conference. And what's interesting is the Fed continues to have these unrealistic forecasts for the inflation rate. They're talking about a 2.7 inflation rate for this year. It's almost certainly on the PCE, it's almost certainly going to have a three handle on it if the commodity complex or oil and energy in particular stay where they are. And then they say it's going to go to 2.1 next year. Yeah, maybe. And then 2.0 in 2028, which is really kind of comical. This has been going on for years and years that the inflation rate continues to be elevated above the Fed's target rate and yet they say two years from now it's going to be at 2.0 and that just doesn't appear to be the case.
Well, it also it's kind of like their, I guess you could say the same thing about their forward projections which the Fed chair himself even, you know, if not laughs at suggests don't pay a whole lot of attention to the most recent ones because if they're projecting a cut for this year and a cut for next year and here we are as you said with all these unknowns and inflation, their own inflation expectations went up. So, it just makes the whole thing kind of hard to look at with a straight face, doesn't it?
It does. It does. And of course, you know, I talk about the two-year Treasury relative to the Fed funds rate every time we get together. And the two-year Treasury is higher than the Fed funds rate now. Fed funds rate in the middle of the range is 3.58. And so, the market is sort of saying there's a better chance of a hike than a cut. And what I look for in the press conference from Jay Powell is when he goes off script and it seems like he starts to feel it a little bit and does an ad lib and the ad lib that really hurt the market. And I thought it would in real time when I heard him say this I thought uh-oh we're going to start heading lower on risk assets and the quote was if we don't see the progress and I'm going to say on inflation. He didn't say on inflation but he was in the context of speaking of inflation. He said, 'If we don't see the progress, then we won't see the rate cut.' Which is pretty plain English, right? And so if we don't see inflation progress, we won't see the rate cut. Well, right now, our inflation model says that we're headed to three and a half inflation rate for basically to endure for the second half of 2026. So that could not possibly be classified as progress on inflation. It's anti-progress on inflation. It's inflation going higher. So it was really fascinating. I actually tweeted this out on Thursday. Treasury, there was more of a chance of a... that's not really the way it looks on the pricing of the warp function on Bloomberg where there's still some hope, I guess, for stability on the Fed funds rate, but I don't think investors should be calling for a rate cut. I noticed what really struck me when I was watching the pregame, if you will, on CNBC prior to the Fed appearance, it really struck me that the guests that were trying to lean bullishly on risk assets were all saying, 'We're going to get two cuts this year. We can count on two cuts this year.' And I just think to myself, what makes you think that? I mean, the inflation is going up. Oil is at almost $100 a barrel at that moment, you know, and the two-year Treasury is above the Fed funds rate. I just think that if your only hope is that you're going to get Fed rate cuts, I think you're betting on the wrong horse. I think you're just going to get disappointed.
Do you think we could actually get a hike? Do you think that, I mean, the odds for a rate hike in June are actually higher than for a cut? Do you think we could get a hike?
