Some bulls who cheered the stock market's rebound over the past three weeks might argue that the market's strong performance in the face of millions of jobs evaporating - and other obvious signs of unprecedented economic distress - suggests a "V-shape" recovery is back on the table.
Unfortunately, typically the first "green shoots" for the economy don't appear in the stock market, they surface in the actual economy. And with Apple cutting and delaying its iPhone production while tens of millions of American jobs evaporate and projections suggest coronavirus-related deaths could be as much as 60% higher than official figures suggest, reigning 'bond king' Jeffrey Gundlach, who famously covered all his equity shorts back in March because "the profits were too great to not harvest."
For the first time in years I am now not short any U.S. stocks. I covered my last three shorts today at 2:37 p.m EDT. The profits were just too great to not harvest, and the panic is palpable.— Jeffrey Gundlach (@TruthGundlach) March 18, 2020
Gundlach, a longtime critic of the Fed's policy, has stepped up his criticisms of the central bank as its balance sheet swells with newly-acquired corporate bonds.
And during a lunchtime interview on CNBC, Gundlach revealed his current equity-market positioning, while warning that a popular index of corporate bonds is now among the most overvalued assets in the world thanks to the central bank's buying.
Any economists who believe the US will see a swift recovery in Q3 and Q4 2020 are probably out-of-touch with what's really happening in America right now, Gundlach said.
Because the economic picture will almost inevitably deteriorate further.
“I’m certainly in the camp that we are not out of the woods. I think a retest of the low is very plausible...I think we’d take out the low.”
The DoubleLine Capital founder tossed some red meat to the day traders who hang on his every word by revealing that he opened a new short position at 2,863, seizing the opportunity presented by the market's rebound.
"Actually I did just put a short on the S&P at 2,863. At this level, i think the upside and downside is very poor. I don’t think it could make it to 3,000, but it could. I think downside easily to the lows or beyond...I’m not nearly where I was in February when I was very, very short."
Though 'never fight the Fed' is a popular investing truism, Gundlach said that LQD - a popular corporate bond ETF - looks the most overvalued thanks to the central bank's new bond buying programs.
Of course, you don't need to be a billionaire portfolio manager to understand that there is a deep disconnect between the market and the real economy.
Amazingly, as Goldman's Kostin noted, Goldman's 'Strong Balance Sheet' basket has returned -5% YTD while its 'Weak Balance Sheet' basket has returned -27%. This leaves the market in an extremely precarious position as more signs of economic decline could hammer all four as consumer spending plummets along with digital advertising spending (though, to be sure, Microsoft, Amazon and Alphabet at least have cloud computing businesses to fall back on).
But like Gundlach said, as we've seen, in the past, the longer the market and the Fed put off the day of reckoning, the worse it will be when it finally all comes tumbling down.
Watch the interview below: