In what may have been Jeff Gundlach's most bearish presentation to date, explainably under the theme of "Tick, Tick, Tick", and with references to such board games as "Kaboom - Baloon Busting Game", "Sorry", "Dynamite Shack", "Trouble" and "Twister", DoubleLine's (with an AUM of $80 billion set to surpass Pimco's TRF quite soon) founder was at a loss for words trying to explain just why Yellen is hell bent to hike rates in one week, just when the global economy is not only clearly not in the required shape, but warning that the outcome from a Fed rate hike will lead to a dramatic repricing (lower) across all asset classes.
As Reuters notes [10], despite soft growth in the U.S. and weakening global growth, the Fed is "hell bent" on raising interest rates because it has said in many speeches that it would do so, Gundlach says. "It's possible the Fed pulls another Lucy and the football," Gundlach said, referring to peanut character Lucy yanking a football away from Charlie Brown.
Gundlach, who has been warning that the U.S. Federal Reserve should not tighten monetary policy in December, cited a number of other asset classes that are signaling deteriorating conditions. The commodities market has been facing monstrous declines with copper prices, as an example, down 37 percent since July 2014 while "the breadth of the equity market may be the worst ever." Gundlach characterized commodities as the "widow maker" of the markets.
Overall, Gundlach said it is "unthinkable" to raise rates with junk bonds and leveraged loans struggling so much.
Gundlach predicts that the Fed could end up looking like Sweden's Riksbank, which hiked back in 2010 and 2011 only to have to quickly reverse and quickly slash rates. The Fed "philosophically" wants to raise interest rates and will use "selectively back-tested evidence" to justify an increase in rates, he added.
His most dire warning: "If the Fed hikes it will be a different world; everyone will have to unwind at the same time. If you think junk bonds are bad now, just wait."
As to whether he is buying any beaten down assets here, the answer is probably not: "we are looking at real carnage in the junk bond market," Gundlach said [10]. Gundlach also said it was too early to buy high-yield junk bonds and energy debt. "I don't like things when they go down every single day."
As for equities: "The breadth of the equity market may be the worst ever" and no, he is not a fan of the overall market either: "The S&P500 has been whistling through the graveyard."
Finally, what could prevent a rate hike: "market turmoil would be the main factor that delays a hike by the Fed next week."
In that case, the market has exactly one week in which to "turmoil"...