Jeffrey Gundlach: Time For Investors To Prepare For A Substantial Softening In The US Economy

Tyler Durden's picture

While presenting his view on this morning's S&P warning to Reuters, in addition to expressing his now "well-accepted" contrarian outlook to that of Bill Gross via-a-vis the US Treasury response to the end of QE2, DoubleLine's Jeff Gundlach (his latest complete presentation was posted here first) had some very cautionary words for both the economy and for stocks.

Gundlach said Treasuries, whose major holders include foreign investors, will be in high demand as the U.S. economy will "soften substantially" with no monetary stimulus in the pipeline.

The S&P warning, which cited a risk that policymakers may not reach agreement on a plan to slash the huge federal budget deficit, is "good for Treasuries and bad for the economy and stocks," Gundlach, who oversees $9.8 billion at the Los Angeles-based firm, told Reuters.

So while Gross and Gundlach disagree over the future of yields ("U.S. Treasuries will perform well following a downgrade by Standard & Poor's on Monday of the rating agency's credit outlook for the United States, DoubleLine Chief Executive Officer Jeffrey Gundlach said on Monday"), both essentially agree that equities are now substantially overvalued... At least until such time as more monetary stimulus is injected now that any fiscal injection is pretty much a non-starter until 2013.

The only question remaining is when will the rest of the market, which continues to ignore sanity and is on persistent robotic autopilot, grasp this simple math.

Last week on an investor conference call, he said: "By now it's getting relatively close to June 30 and it's about time for the markets to start discounting the end of QE2 and a weaker economy."

Oddly enough, as today's S&P action, which was certainly inspired by Wall Street itself to no small degree, demonstrated, even the street itself is doing all it can to precipitate a sell off and thus set the stage for more monetary loosening, yet manages at most a 1% or so drop in risk assets. Which is why while many joke about the market, calling the reflexive upward climb of stocks SkyNet-like, one wonders: does even Wall Street now scratch its head over how to control the ETF, HFT and POMO-inspired relentless climb in stocks?

Is SkyNet now truly self-aware?

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AbandonShip's picture

Anyone see that Krugman guy lately?  Penny for his thoughts.   Literally, just one penny.


(woohoo, never been first before!  Bitchezzz....are we still doing that these days?)

topcallingtroll's picture

Yeah bitchez can go with anything now.

It is still traditional for it to be preceded by a comma.

TruthInSunshine's picture

I weep for my nation when 99.99% of the adults don't realize the extremely basic scam being pulled on themselves and their children, whereby a private bank is charging them interest on money it is loaning to them via their government, all sanctioned and blessed by their alleged 'elected' representatives.

  • I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up  a monied aristocracy that has set the Government at defiance. The issuing power should be taken from the banks and restored to the people to whom it properly belongs. - President Thomas Jefferson.
  • I wish it were possible to obtain a single amendment to our Constitution. I would be willing to depend on that alone for the reduction of the administration of our government to the genuine principles of its constitution; I mean an additional article, taking from the federal government the power to borrow money. - Thomas Jefferson
  • If (As the supreme court had recently inferred) Congress has the right under the Constitution to issue paper money, it was given to them to be used by themselves, not to be delegated to individuals or corporations. - President Andrew Jackson
  • From the testimony of Marriner Eccles, Chairman of the Federal Reserve Board, before the House Banking and Currency Committee, Sept. 30, 1941:

Congressman Patman: "Mr. Eccles, how did you get the money to buy those two billions of government securities?"

Eccles: "We created it."

Patman: "Out of what?"

             Eccles: "Out of the right to issue credit money." (i.e.Out of the right to create it. Do you see the insanity of it all?  You and I must work hard for every dollar of ?? that we earn, while the banksters havethe legal right to create money!  RWS). 

  • Banking was conceived in iniquity and born in sin.....Bankers own the Earth. Take it away from them but leave them the power to create money, and, with the flick of a pen, they will create enough money to buy it back again.....Take this great power away from them and all great fortunes like mine will disappear (he was said to be the second richest man in Britain) and they ought to disappear, for then this would be a better and happier world to live in.....But, if you want to continue to be the slave of the bankers and pay the cost of your own slavery, then let the bankers continue to create money and control credit. - Sir Josiah Stamp, President of the Bank of England
  • Permit me to issue and control the money of a nation, and I care not who makes its laws. - Mayer Anselm Rothschild

"The few who understand the system, will either be so interested in its profits, or so dependent on its favours that there will be no
opposition from that class, while on the other hand, the great body
of the people mentally incapable of comprehending the tremendous
advantage that capital derives from the system, will bear its burdens
without complaint, and perhaps without even suspecting that the system
is inimical to their interests."

Quote by: John Sherman
Protege of the Rothschild banking family
Date: June 25, 1863 Source: in a letter sent to New York bankers, Morton, and Gould, in support of the then proposed National Banking Act
baby_BLYTHE's picture

Andrew Jackson Versus The Bank of the United States (on the battlefield not worthless courts)

As his term continued, Jackson truly grew a desire to crush the Second Bank of the United States. Over time he had decided that it could not continue as it was, and that it did not warrant reform. It must be destroyed. Jackson's reason for this conclusion was an amalgamation of his past financial problems, his views on states' rights, and his Tennessee roots. The Second Bank centralized financial might, jeopardizing economic stability; it served as a monopoly on fiscal policy, but it did not answer to anyone within the government. Above any principled concerns, however, the Bank became a political battle.

 Congress chartered the Second Bank in 1816 for a twenty-year period, giving it thirty-five million dollars in startup funds. A board of twenty-five directors controlled the Bank, but only five were publicly appointed by the President–the rest came from stockholders. The directors controlled branches, invested funds, and oversaw operations. Over time, the Bank proved quite good at managing credit and providing profits for the stockholders and government–perhaps too good. In 1819, the Bank had caused a financial panic by calling in credit from smaller state banks, forcing many of them into bankruptcy. This Panic of 1819 led to such a depression that western regions of the country still suffered in the late 1820s.

By Jackson's administration, the Bank had expanded into twenty-nine branches and was doing roughly seventy million dollars of business a year, handling twenty percent of the nation's loans and monetary notes and one-third of all deposits. Perhaps more important, Jackson–who because of his previous election experiences remained wary of voting improprieties–thought that a bank with that much power could not remain independent of the electoral process. While the Bank in 1830 remained relatively clean and did not abuse its power, Jackson believed it was a disaster waiting to happen, and set out to shut it down.

When the Bank, led by Nicholas Biddle, realized Jackson's intentions, it began a public campaign to curry favor. Biddle announced that the Bank intended to pay off the national debt–another of Jackson's pet causes–by January 8, 1833, the eighteenth anniversary of the Battle of New Orleans, in Jackson's honor. The offer, of course, came with the caveat that the Bank would get a charter extension. Biddle also began to offer financial favors to Jackson's friends, in the meantime proving Jackson's belief that the Bank could play political games if necessary. Jackson did nothing and waited for the right moment to act.


Biddle then surprised everyone by asking for a recharter in January of 1832–a Presidential election year–four years before the current charter expired. Biddle believed that by making the Bank an election issue, he could force Jackson to support it out of fear that it might cost him the election if he did not. Jackson figured otherwise.

The recharter bill came to the Senate floor in March, and it met with surprising support. Senator Thomas Hart Benton, a Democrat from Missouri who led Jackson's congressional opposition, scrambled to counter the support. Benton convened a House investigation that restated many of Jackson's complaints and publicized them in newspapers across the country. The effort was too little, however, and the recharter measure passed Congress by early July. When the bill arrived for Jackson's approval, he told Martin Van Buren, "The bankis trying to kill me, but I will kill it!" Jackson and his advisors carefully crafted a veto that would not anger the public and therefore would not cost the Democrats support in the fall election. Citing the stockholding of foreign citizens and the Constitutional questions the Bank's monopoly raised, Jackson ended with a stunning broadside to the Bank, arguing that its favoritism went against the role of a government that should stand for honesty, equality, and fairness. When Congress could not overturn the veto, the battle turned to the November polls.

The 1834 election developed into a battle between Henry Clay and John Sergeant of the National Republican party, Jackson and Van Buren in the Democratic party and–in the first third-party bid in American history–William Wirt and Amos Ellmaker from the Anti-Mason party. Clay latched onto the Bank issue, as it was one of the only weak spots in Jackson's presidency. The Democrats, meanwhile, shaped the campaign as one between the rich aristocratic Clay and the "everyman" worker Jackson. Jackson won handily in the Electoral College, defeating Clay 219 votes to 49. However, in the popular vote, Jackson's two opponents garnered 530,189 votes while Jackson won 687,502–hardly a strong mandate from the people. In fact, Jackson stands as the only president in history to be reelected by a smaller percentage of the vote than he won in the first election. The Bank issue had indeed cost Jackson dearly.

The Nullification Crisis with South Carolina and the tariff issue distracted Jackson as he transitioned to his second term, but by the spring of 1833, he again focused on destroying the Bank. He announced that he would withdraw the government's money from the Bank, much to Biddle and Clay's dismay. Jackson, however, faced worries from the Treasury Department that the state banks afforded the same security as the national Bank. Nevertheless, on September 25, 1833, the Treasury ordered all government deposits would be placed in state banks as of the beginning of October. Biddle countered that the Bank would cease offering loans nationwide, which sent the nation into a near-panic, as state banks were unable to meet the new demand–even with the government's new funds–and many curtailed their loans. Jackson became only more dogged in his quest to stop the "monster" bank.

In 1834, Jackson began a push to move towards "hard" currency, gradually phasing out small bills over more than twenty years. He and Benton believed that only gold and silver provided proper security, as, during financial bust periods, working-class people could not get credit. Hard money, then, ensured the workers would always be paid in money that had real value. The move terrified many rich Democrats, who saw a future in which they might not be able to conduct business with large bills. In a final attempt to end the Bank, Jackson ordered it to cease issuing pensions to Revolutionary War veterans and to relinquish those funds. Biddle refused, and the bank battle quickly deteriorated. Jackson's own Attorney General questioned the moves, and Jackson faced barrages from business leaders up and down the East Coast who thought he must mean to ruin the country.

Some Democrats began to leave the party. Joining with National Republican, states righters, nullifiers, and other Jackson enemies, they formed the Whig party–headed by none other than Clay. The views of those involved were so disparate that they could only unify under the banner of opposing Jackson's bold new uses of Presidential authority. Indeed, the Whig newspapers soon mockingly anointed Jackson "King Andrew I." The new party, coupled with a rumor that a new bank might launch in New York to counter the national bank, brought the nation new fear of financial disaster.

Although Van Buren eventually quieted the new bank rumors, the country still hung in the balance when the Senate voted to officially censure Jackson for his actions in February 1834. Adding insult to injury, the Senate also refused to confirm Jackson's new Treasury Secretary. Jackson filed a protest with the Senate, saying the Bank's abuses of power made it an "imperative duty" for him as chief executive to rid the country of the Bank. He carefully ended with an appeal to the people, explaining anew his reasons for opposing government monopolies and saying that he was proud of his actions.

Above everything, Jackson prevailed. By April 1834, the Bank was dead. The Democrats in Congress rallied behind their leader and passed resolution after resolution supporting Jackson. The financial panic passed quickly. In the 1834 elections, Democratic candidates won handily across the country and gained the majority in the Senate–which, under the new leadership, quickly expunged Jackson's censure and apologized.

1fortheroad's picture

Good job Blythe, but it seems NOBODY gives a shit.

No More Bubbles's picture

Dead on!  It's why they all need to be lynched.  It's really not that complicated......



blunderdog's picture

If you're annoyed by the CAPTCHA, you just don't spend enough time here.

chistletoe's picture

Jesus!  Kids can't even make change these days!

Give a cashier $10.25 for a tab of $6.25 and he will stand there helplessly confused.

The captcha is a good thing!  If we would all learn some simple arithmetic

we would not be in this mess in the first place!

Cash_is_Trash's picture

The education system is so incompetent; as Carlin said, it teaches people to be smart enough to do menial jobs but dumb enough to not question the system.

The kids today are trash. Just look at the tatoo and piercing culture, the shit rap music they all enjoy, the helplessness of their friends and family.

A part of me say help 'em, a part of me says fuck 'em.

TruthInSunshine's picture

The captcha is a perfect indicator and timer of the collapse of civilization, and ZHers know this.

When the average number of log in attempts reaches 4.2721, due to incorrect responses, and given that average ZHers are roughly 3x as intelligent as the average American (and 30x as intelligent as the average Keynesian), 'Mad Max' style living conditions will be imminent.

Hernando's picture

Very good comments. 


Only once in the Bible do we see Jesus become physically violent when he went ballistic against the Moneychangers in front of the Temple.


Today, we are in the midst of a war between Satan's powerful forces of darkness and 99% of the American people.   We know the greedy demonic forces are winning so far.



Gimp's picture

I give Krugman credit for one thing...always being wrong!

carbonmutant's picture

Look, being consistent is

Sudden Debt's picture

and being consistently wrong is as hard as being consistently right :)


Misean's picture

Good Keynsian stimbubbulous policy that. Massively over paying for worthless work. You'd go far in Princeton's ebubblegnomic department, mate.

TruthInSunshine's picture

PragCap Link

Let's see how an economy that is sucking wind really does when the plug of TBTF stimulus and crack fiat for speculative junkies is yanked.

Bernanke sees the knives drawn and the mob headed in his direction.

The political calculus by Obama from risking truly runaway inflation for a long time to come - in the year's run-up to his re-election bid - with $4/gallon gas and higher (now) among other ridiculous and speculatively bid up prices crushing Americans and those abroad - has got to be an underlying factor here.


I'll go one step further, admittedly in total speculation mode: Prepare for news of a coordinated IMF/Fed/ECB framework/agreement/policy of a massive scale. The tipping point is arriving and objects are bigger than they now appear, even by those attuned.

akak's picture

Anyone see that Krugman guy lately?  Penny for his thoughts.   Literally, just one penny. 

I believe that he is now writing pro-Fed, pro-Wall Street, pro-big government, pro-status-quo tripe under the nom de plume of "Leo Kolivakis".

TruthInSunshine's picture

Krugman is busy working on what he expects will be his next big 'success.' It's a treatise on the massive and historically unprecedented debt crises of sovereign nations, and his proposed solution will be to print the precise amount of the aggregate debt by which to pay said debt off.

Sean7k's picture

Even Leo makes more sense than Krugman. 

Dejean Splicer's picture

So how does that big guy Mr.Icahn get out just in time?

WestVillageIdiot's picture

He dies.

The fucking devil was in high school when FDR took office.  We can only hope he takes Greenspan with him to that warm place called hell. 

topcallingtroll's picture

If the selloff that is going to occur at the end of qe2 is widely anticipated then it will occur earlier.

Sell in may and go away.

bob_dabolina's picture

Gundlach is the man.

Shit, I'd probabaly let him fuck my sister.

Gimp's picture

Please post pics of sister!

WestVillageIdiot's picture

I'd probably let him fuck your sister, too.

Problem Is's picture


Question: How do you circumcise a PhD Economist from one of the "right" schools??

Answer: Kick his sister in the jaw...

Sudden Debt's picture

you say that about everybody.



gordengeko's picture

Skynet is selling risk assets to ARIIA who just won't let the bid die.  It's their world we just comment on it.

WestVillageIdiot's picture

Just think how much gold and silver will fall out of weak hands if everything crashes this time.

It is funny that the gold bashers think that anybody that owns gold has every penny they have placed in metals.  Who else can remember late 2008 and 2009 when metal prices crashed with the stock market?  You could order metals but the sites for physical were overwhelmed.  I think I ordered silver eagles for about $12 each.  They took 4 months or more for delivery.  It was worth the wait.  It will be worth it again. 

The next crash will fuck housing in a way where it can't get unfucked.  Nobody seems to be talking about that forgotten elephant in the room.  I think Bernanke knows that if the stock market crashes housing will be fucked beyond measure.  "Bye bye" financial system, at that point.  There will be no tax credits or FHA left to jump into the breach. 

tickhound's picture

Good points...

Only this time I think the metals will blast off... with help from where we usually least expect.

Long-John-Silver's picture

I agree and history backs you up. The initial crash in 1029 caused people to run the banks and go for cash in Dollars, Gold and Silver crashed. When the second crash hit people had lost all trust in Dollars and turned to Gold and Silver. Gold became a direct competitor with Dollars, which led FDR to attempt to confiscate Gold. He got 1% of the Gold dumb people kept in Bank safety deposit boxes. The rest of it went into a thriving black market. Our second crash is happening now. People are fleeing to Gold and Silver once more. It'll be interesting to see if Obama attempts to confiscate Gold and Silver as FDR attempted to do.

A Lunatic's picture

No one need confiscate PM's. You cannot pay taxes with them therefore you ultimately lose the waiting game. Yes I know, they can't arrest, kill, round up, fine, (insert paranoid delusion here) everyone etc, however that special fact is cold comfort indeed when you wake up at 2am with eleven highly trained black ops dudes pointing Mossbergs at your head for non payment of said taxes.

Missiondweller's picture

Except in Utah. Other states to follow.

Of course you can always wait to convert some gold to cash to pay federal taxes.


Manthong's picture

I'd sell my sister into sex for fiat before I hand over PMs for taxes.

Manthong's picture

Actually, she could use the overtime.

TheMerryPrankster's picture

It's not really work in you enjoy it.

gorillaonyourback's picture

no long john our money was backed 40% by gold back then, he confiscated to print more money.  but either way it was stolen

old naughty's picture

The least expect can also work in the other direction...question is are you the majority?

Hacked Economy's picture

Ditto, Village Idiot.

I usually get my silver at about 10%-15% below spot...and that's for actual physical delivery.  All because I'd time the purchases to coincide with a downtick in the spot price action.  Honest truth...and I'll take my secret method to the grave to protect it (hehehe).

But with the increased fervor and the ramp up in silver price, I haven't been able to do that for the past two weeks, and actually had to pay (gasp!) actual spot for my PM yesterday.  That was at $43!  If it crashes, it might be the last time for quite a while, because the downplay might be a buildup for a slingshot up-play that will send the spot rocketing.  So if it crashes, you better believe I'll buy all I can...even if I have to wait for delivery.

But going from 1-7 days to four months for delivery might make me lose a little sleep until it arrives.  It's not really mine, ya know, until it's in my hands.

1fortheroad's picture

Yea, right, and what idiot would sell to you at spot? You are an Idiot.

Hacked Economy's picture

Actually, about a dozen people (idiots, as you call them) have.  It's all about perception and timing.  Plus...having cash (FRNs) in hand and waving them in front of sellers does wonders.  I've amassed thousands of dollars' worth of physical that way.

Yer just jealous that you didn't do it.  So who's the idiot now?

Humpty Pundit's picture

I am anxious to see if Q1 earnings and Q2 guidance over the next 3 days has any impact.

MrPerspective's picture

Look away from the headline names. TXN had decent earnings and will see a strong end of year, once Japan is back on line for them. 

Instead, take a look at companies like Crane that posted great earnings and raised their guidance. If these guys are raising their guidance it's a pretty good sign that the economy's strength has taken hold.

Also, check out earnings from the regional banks, pretty stellar so far.

Read beyond the headlines, folks before jumping to silly conclusions.

WestVillageIdiot's picture

"Also, check out earnings from the regional banks, pretty stellar so far."

It's amazing what decreasing loan loss reserves can do.  Are you fucking kidding with this post?  The banks are getting squeezed by rates that make it nearly impossible to book new loans.  If the muni market takes another hit the regionals will get clobbered.  I would also love to know how much MBS those regionals are holding.  I don't believe a single one of these banks is doing as great as they try to say. 

Misean's picture

That should read "Softening of 401K Market". For those without permanent access to the money spigot, the ebubblemy has been soft for quite a while.

Humpty Pundit's picture

Bob - I may be interested in your sister - what does she look like?