"Economic Headwinds Are Building" - Jeff Gundlach Warns Of Imminent Recession

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by Tyler Durden
Tuesday, Mar 28, 2023 - 07:45 PM

Echoing his comments from earlier this month, 'Bond King' Jeff Gundlach warns of an imminent recession - within the next few months - as the yield-curve suddenly steepens...

“The economic headwinds are building, we’ve been talking about this for a while, and I think the recession is here in a few months,” Gundlach said Monday during an interview with CNBC.

“All we really need is the unemployment rate to go higher.”

In fact, the 5s10s spread actually uninverted last week...

As Gundlach previously noted:

"In all the past recessions going back for decades, the yield curve starts de-inverting a few months before the recession," adding that,

"I think it's within four months at the most. Almost every indicator is flipped into high probability. The only one that hasn't is the unemployment rate."

And with reference to that, Gundlach previously pointed out that at 3.6%, the unemployment rate just crossed back above its 12-month moving average...

Which, historically has been "a reliable indicator you're on the doorstep" of recession.

Gundlach is far from alone as even Goldman Sachs' Jan Hatzius increased his forecast of recession odds within the next year to 35% (still well below the consensus 60% odds of recession)...

The Doubleline Capital founder also said he believes The Fed will "capitulate" and will cut interest rates “a couple of times” this year.

More directly, he warned that if the Fed raises rates again in May, the difference “between what you can get on T-bills and what you can get in the banking system will grow.”

He warned that such a scenario would “counter-productively cause great shrinkage of liquidity in the banking system, maybe some more problems with unrealized losses,” he said.

As Goldman notes, further monetary policy tightening combined with the contraction of the credit impulse from banks themselves will have a more serious drag on real GDP growth...

The new 'bond king' also opined on the insane volatility that markets (especially bond markets) have been experiencing recently:

"The markets are so volatile, so much movement that it's almost impossible to sell on weakness. The markets just go from a mineshaft type of decline and that's true in the credit markets and I think it's true in other risk assets as well," Gundlach said.

The overall state of the economy is “clearly weak,” Gundlach concluded.

Watch the full interview below: