Jeff Gundlach On The Fiscal Cliff Circus And Why Investors Should Hold Cash Through 2013

Tyler Durden's picture

From the sheer hypocrisy of a fight over a few billion dollars when faced with trillion dollar deficits and the eventual austerity that will be forced upon the US, DoubleLine's Jeff Gundlach expounds on his growing concerns at markets where fundamentals "are trumped by policy decisions," and while he does not believe that bond markets are bubbly at the moment, the impact of an inevitable recession could be devastating given valuations. His subtle suggestion to keep powder dry through 2013 and into 2014 (as deploying money at that future point will make all the difference), follows from his view that he does not see much value in US equities and suggests great care be taken in US bond markets (focusing on low volatility funds) as he looks at Japan's dismal record (and hyperinflationary possibilities) and reflects on the US that "the issue isn't the fiscal cliff. The issue is the fiscal crisis that the United States has been looking at for the past several years."


Gundlach on how to invest in this environment:

"One thing is clear that this is the beginning of an attempt to bring the fiscal deficit under control or at least start to address it. When you raise taxes and when you cut spending, whatever the combination is going to be, you will have headwinds for the economy. The economy is really being supported--this isn't just in the United States, it's in Japan, the ECB and Britain--the economy is being supported by quantitative easing that is allowing for a massive budget deficit and money printing exercises to go on...


As you address the fiscal problems, you are going to have weak economic growth. What that means is that you are in an environment that is going to have further trouble in terms of investment returns that are in areas that are based on economic growth and areas that do relatively well like bonds... Broadly speaking, I think that investors should be looking for lower prices on most risk assets in these developed countries with the exception of Japan…Investors should be looking for the potential inflationary consequences of all this money printing exercise and the place to look for that is Japan..."

On whether Japan is foreshadowing for what will happen in the U.S.:

"Possibly... I certainly think that Japan is the pace car here. They started out 20 years ago with their zombie bank problem and they've tried various things to get the economy going. Now there's some political change afoot in Japan and they are definitely in the place to look. Japan is in a uniquely bad position. The United States is not in as bad as a position as Japan."


"Ultimately, when you start to look at all this money printing which may continue, Ben Bernanke has said forever basically that yes, at some point, one has to worry about inflationary consequences. I've been saying for years though, that investors who are focusing on the near-term on inflation are way too early and that's still the case in the U.S."

On whether investors should get more disciplined and look at fundamentals:

"The fundamentals are always important but it does get trumped by policy decisions when policy decisions are so radical as has been the case in recent years... There seems to be diminishing returns on the various rounds of quantitative easing. It's almost like a half-life of a radioactive particle. The first quantitative easing brought 50%, the second brought a little more than half of that, the third half again, the fourth less than half again.


It just seems that the idea of a Pavlovian reaction when you see quantitative easing that you should go out and buy risk assets--it has worked four times, but it doesn't seem like you are getting much bang for your buck any more... I would point out that gold, for example, hasn't done much of anything in the last couple of rounds of quantitative easing. It seems that the fundamentals are starting to exert themselves more powerfully against the backdrop of endless quantitative easing, so it's possible that the market support is close to finding its limit. This is why I think that investors should be holding cash and buying risk assets at lower prices once the fundamentals assert themselves."

On whether we're in a credit bubble:

"I don't think there is a credit bubble at this point in time actually. The most powerful fundamental, which is really artificial thanks to the central banks, is that there is a zero interest rate in place in this massive market of government guaranteed securities and therefor by extension, very high quality bonds. It pushes people by necessity into other investments. I don't believe that until there are cracks in the credit quality structure of the credit system that you are going to see a substantial selloff in the credit markets for high yield bonds, non-guaranteed mortgage securities, emerging market debt, so I don't really expect that is going to happen."


"The real killer is going to be the next recession. And there will be one. The policymakers are trying hard to have it both ways... Ultimately as you address the fiscal situation, you're going to run the risk of a recession.  When the next recession comes, it's going to be a real killer because what exactly is going to be the policy response.  It will be policies in terms of raising taxes and cutting spending that help to bring on the next recession I think, so I don't think it's very plausible that you're going to just turn around and go back to the old method of pumping up the economy with debt... Next recession comes.  So the next recession probably is going to be somewhat cleansing, which means that you're going to see things repriced lower."

On where to put your money if not prepared to do short-term trading:

"You've got to survive with virtually no return if that's the way you look at things. I actually recommend that for many investors. I think the small amount of money that you might make by trying to push it here as we get closer and closer to the end game where this thing might tail out--the amount of money you might make will be dwarfed by the amount of money you might lose when things reprice lower.


Put it another way, if you just stay in cash and earn a small return or stay in a low risk investment and earn a middling single digit return--the money you might be able to make as we move into late 2013 or early 2014 with repricing, the amount of money you might make if you are able to deploy the money at that point will make all the difference. People always want investments to go up like a line... That's just not reality. You make 80% of your money in 20% of the time in investing and you have to be patient…I see some values in some of these foreign markets. I don't see a lot of value in the U.S. stock market and I think you have to play it safe in the U.S. bond market with funds that are really dedicated to having low volatility."

On fiscal cliff talks:

"Something is going to get done, it looks like, between John Boehner who has now blinked a little bit going with the million dollar tax bracket and the president going with the $400,000 tax bracket. They're getting close, but this is all just a big circus really. We have a $3.6 trillion spending going on at the federal government and they're taking in $2.3 trillion dollars. So the shortfall is $1.3 trillion and what we are talking about with the million dollar increase is about $20 billion of revenue that would be brought in. At the $400,000, you're talking about maybe $35 billion. So this is just masking a huge fiscal issue. The issue isn't the fiscal cliff. The issue is the fiscal crisis that the United States has been looking at for the past several years and this is sort of a down payment on finally some fiscal reform." 

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Manthong's picture

Keep that cash to take advantage of the miracle of compound interest.

CPL's picture

Here, hold this bag through 2013.


No fuckin way we want it.

fonzannoon's picture

Gundlach translated: I hope that shit sandwich tastes good because we have a whole lot more of it to eat. 

i just can't agree with his conclusions. short term sure. but the market drops and the debt does not disappear...that leaves us with a complete currency crisis. not a buying opportunity.

CPL's picture

Ta da!  That's the magic trick.


Pretty funny that people will fall for it too.

Max in St Moritz's picture



Magic?  Let me tell you what's magical...  the fact that Bernanke was able to break the compound interest function on our debt.  

That's magic. 

Big Slick's picture

Can the author tell me how to earn middle single digit interest rate on a low-risk investment?

There's a lot here that doesn't jibe.

Max in St Moritz's picture



High quality corporate bonds. 

Michaelwiseguy's picture

What's with it with all these fucking gun grabbing British Red Coats on American TV airwaves like Piers Morgan, trying to take our guns away from us?

I'm glad I don't watch CNBC with that British cunt and cocksucker on it anymore.

The MSM is Now the #1 Enemy of the American People.

By their deeds you shall know them.

Larry Pratt, Executive Director for Gun Owners of America, beat that cocksucking Red Coat Brit Piers Morgan down this evening. I didn't watch it live, just got the links from Daily Paul. Waiting for complete Youtube link.

These Elitist Fascist Feudalistic Marxists want the entire population of the planet disarmed so they can run roughshod all over the populace. We already figured this out. That ain't going to happen pal.

SafelyGraze's picture

by now you have all probably seen the professor guy doing the periodic table of videos in the gold vault of the bank of england

"I've never seen so much gold; in fact, I've never seen so much of *any* element"

yo professor! meet carbon!

you might not have seen his testimony before the congressional libor committee

Michaelwiseguy's picture

About that Richard Simmons video, 50 years ago people were fit and didn't need mega doses of exercise, Why don't they address the causes of why people are un-naturally fat today, and it's not because they eat too much.

On another issue;

Tits and Ass Holes

That, ladies and gentlemen, are the two requirements for being a reporter today. You need a bimbo all done up to distract you from the news, or a "tough" woman who asks some emotional questions while squinting at the camera ever so slightly just to catch your gaze so she can look into your soul!

You know what I mean...

Then you have these dicks acting completely disrespectful to their guests and their views. Just like that O'Really douche, they get people on just to yell at them. Um ok, I thought you wanted to have a conversation, you screaming pink monkey!!! STFU!

Anyways, it has become clear what types of people these people are. They're full of shit. (Commenter from Daily Paul)

Mr Lennon Hendrix's picture

When I first read this headline I thought I was reading a sarcastic Zero Hedge article, but no, they are serious.

Japan's Deflation Battle - Why This Time is Different:

Michaelwiseguy's picture

This Jeff Gundlach is amazing. I'm watching it again.

Harlequin001's picture

Why would anyone want to hold cash through 2013 when they are going to print so much more of it?

Why not just get in early and buy pm's?

Makes sense, does it not?

GetZeeGold's picture




How much cash do you want for that gold bitchez?

Pegasus Muse's picture

Interesting that Grundlach talks about manipulated markets but when it comes to gold all he has to say is "it hasn't done much this year"

Well, Jeff, like the other financial market and key commodity markets, gold (silver) markets are completely manipulated too. 

Either Grundlach is not aware of the pervasive continuous COMEX/LBMA Market Rigging or he just isn't ready "to go there" on Mainstream Media.

My bet is he knows but ain't saying ....

Lord Koos's picture

Yeah it's hard for the gold market to respond to QE4 because they smashed the shit out of it pre-emptively.  His comments about inflation worries being premature may have some merit though -- even though there is serious inflation in food products, a lot of other assets are feeling deflationary pressure. Keeping some power dry in the form of cash in the near term, like the next year and a half or so, doesn't seem like a bad idea to me.  Holding gold is a long term deal. 

hooligan2009's picture

i like tits and asses and i dont like male cocksuckers :)

noname's picture

you like Pratt are freaking idiots


hooligan2009's picture

i think the red coats are very very glad that Piers Morgan is in the USA...i bet that he was allowed to use the fast track exit door.

djCandi's picture

"These Elitist Fascist Feudalistic Marxists want the entire population of the planet disarmed so they can run roughshod all over the populace. We already figured this out."

Mwiseguy - What ain't gonna happen is you doing something about it with guns. There are 300,000,000 guns in the US now, and they _already_ ran roughshod all over the populace for at least the last 6 years. It's over and your guns didn't help. Use your brain, do some work, organize your community to elect someone who will make a difference.
Standin' there all pissed off with a gun in your hand does fuck-all.

Big Slick's picture

Max, I should have been more specific... What 2-year high quality investment in the mid single digits?

I find Gundlach's ideas self-cotradictory in a formulaic kind of way.  Like THE SPHYNX in 'Mystery Men' (Stiller is always great)


bunnyswanson's picture

Invest in a legal marijuana growing enterprise.  Or move to a state where it legal and become authorized to grow it and sell it to dispersaries.

fockewulf190's picture

Betcha big tobacco gets into big weed eventually.

shovelhead's picture

Far more money to be made in the illegal weed business.

Tons of California & Colorado weed end up in the North & East where wholesale prices are still very high.

Cheaper than dirt Mex shwag is still doing fine too.

Grannies who used to grow daffodils are now packing elbows for sale.

samcontrol's picture

@ big.

Ask your banks for Phoenix autcalls with APPLE , get a Brazilian bond, a few high paying dividend stocks, agnc, arr, vale, ve, fte , tot, bp, and VOILA you have a double digit cash flow.

samcontrol's picture

oh and one more thing Big, buy an apartment for daily rental in Miami.

overmedicatedundersexed's picture

jeff likes japan, because they are worse off then the rest and 20yrs down the road of debasement..he says buy there, me thinks he means I need out and muppets need to buy my book.

little things like nuclear disaster and earth quakes just make japan that much better for investment..brilliant.

Mr. Magoo's picture

"The real killer is going to be the next recession"

When are these brain dead morons going to realize we have never recovered. If it wasn't for Govt pumping money in to system like Military and construction contracts, unemployment EBT, food stamps and all the other handouts people get including loading up on credit card debt we are already in a world of shit when the Govt stops writing checks and when the dollar completely dies then we are going to see real problems

Shizzmoney's picture

I think when he says, "the next recession", he means the next recession for people like HIM, those who make a shit ton of money and hold assets and stocks.

For the REAL economy, we've been in a recession for about 5 years now.....maybe more. 

And THAT recession will eventually bring the dollar down.

kito's picture

When the tsunami of all tsunamis hit, everything will be reset, including the price of pms......sorry but that is how it's gonna roll.....hold physical dollars....too much is not enough......there are way too many digital dollars in every nook and cranny of every market, including's all going to get crushed....the physical dollar is as rare as anything else out there........

odatruf's picture

Physical dollars because paper and ink are so dear?

You think that converting so many zeros and ones into coupons is going to be any kind of barrier to the people running the show?

vast-dom's picture

laughable. the fed monetizes at 80bill per MONTH and they are haggling over 200bil in YEARLY revenue by fleecing people making 400k or more? 

ponzi planet solution: have fed print up tax revenues while they're at it.


don't listen to this guy. i say to you all: SHORT THE PLANET!

game theory's picture

haha...0.0002% will eventually pay off...the "long run" seems especially long lately.

CPL's picture

Next step, 100 yr bonds.

samcontrol's picture

infinite bonds already exist , watchyou talkin about

CPL's picture

Until someone admits it in the media or a press release it's only rumours.

BLOTTO's picture

I wonder what the Queen she tours the BOE vault with Phil and inspects the Gold.


She does NOT just start her mini-austin and go out in public for just anything fuckin ole thing...





JustObserving's picture

Turk: “Yes, absolutely.  And isn’t it curious that somehow they got the Queen of England to go through the bank vault to proclaim how much gold is actually being stored there in the Bank of England?  The unfortunate thing is we don’t know how much of that has been double, triple, or even quadruple times hypothecated and re-hypothecated?....


“So the propaganda machine is well-oiled.  It has been for quite some time.  But let’s put it this way, Eric.  It’s the anti-gold propaganda machine that is well-oiled, and they are going to continue coming out with the anti-gold propaganda.


They are going to continue imposing their will on governments to stop the imports of physical gold.  But people are waking up around the world.  Not only individuals, but there are a lot of central banks now that are clamoring about bringing their gold back to their country.  


After all, gold is a pillar of sovereignty of any country.  If you don’t have control of your gold, you don’t have control of your sovereignty.  This is the point you and I have made before with regards to Germany’s gold, but it’s true for all countries around the world.”

CPL's picture

Rumour is she's been doing a lot of little tours around the government since that.  Spot checks.  She's still the Queen.

illyia's picture

I love it when when someone - anyone! - tells the truth...

mayhem_korner's picture



A down payment on fiscal reform?  What fiscal reform is he imagining that will actually rectify the situation?  And, by the way, if we want to talk about fiscal reform, can we start with the actual annual values that include the growth in future liabilities (i.e., GAAP-based accounting)?  The U.S. does not run a $1.3T deficit per year - it's about three times that.

This is all NOISE.  It is political posturing.  Boehner is rationalizing that his "amended" Plan B is the best solution because it keeps tax rates in place for the greatest number of Americans?  That has nothing to do with solving any structural fiscal's about appeasing the voting blocs and nothing more.

This ship can't sink! 

I assure you, she can, and will.  She's made of iron.

Kickaha's picture

GAAP has been permanently replaced by "Fraudulent Accounting Principles", better known as FAP.

Everyone is just FAPing away out there in financial land. 

surf0766's picture

"this is sort of a down payment on finally some fiscal reform." No it isn't. They do not have the courage to do the right thing.

unirealist's picture

Doesn't matter.  They'll still manage to crush gold/silver until Dec 31.  Just like last year.  Can't have gold being the best-performing investment vehicle of the year.  By 12/31 you'll see that gold is up only 1-2% for 2012.


prains's picture

On whether this is a BOHICA moment in your life:



Caviar Emptor's picture

Japan foreshadowing US? lol. So far we are following in their footsteps into a perfect biflationary storm

Caviar Emptor's picture

Comatose Americans will follow Japan down the rabbit hole. Juat can't resist that siren song. faith is a wonderful thing. But iron-clad misplaced faith can lead to hell

game theory's picture

This seems to me to be a huge mistake to listen to this advice. The gov't is printing cash and spewing it't contractors, food stamps, gov't workers, student loans...just a tsunami of money. You have to be a hermit like me to not be getting some of that free money.  

Cash gets less valuable every moment. Waiting until the end of 2013/14 will destroy the value of savings even more. Real estate in DC is in the early stages of a bubble as the early recipients of this counterfeiting (gov't workers and lobbyists) are bidding up land assets there.  What assets will reprice lower in two years? Even metals are not safe.  The only thing guaranteed to deflate is my morale (since apparently any GS crony can rewrite the rules whenever they want). Thank heavens for Irish whiskey.  

The fed is committed to inflation and the gov't is committed to never closing their deficit. Invest in whatever it is that suits you...but don't hold cash and don't wait.

Dre4dwolf's picture

Im looking for the most volatile stock, and im going all in, IDk what this guy is talking about.


The Federal Reserve is going ALL IN with my money for me anyway, if im forced to hold devaluing paper, I might as well gamble the hell out of it.