Gundlach says ‘strange environment’ to be cutting U.S. corporate taxes

FILE PHOTO - Jeffrey Gundlach, CEO of DoubleLine Capital, speaks during the Sohn Investment Conference in New York
FILE PHOTO - Jeffrey Gundlach, CEO of DoubleLine Capital, speaks during the Sohn Investment Conference in New York City, U.S., May 8, 2017. REUTERS/Brendan McDermid

December 6, 2017

By Jennifer Ablan

NEW YORK (Reuters) – DoubleLine Capital Chief Executive Jeffrey Gundlach, who voted for President Donald Trump, warned on Tuesday that it is a “strange environment” to be cutting U.S. corporate taxes with the economy already in its eighth year of expansion.

“A tax cut will reduce revenue and it will grow the deficit and therefore, it will probably grow bond supply, and perhaps boost economic growth,” Gundlach said on an investor webcast. “And if it does and the amount, it is going to be bond unfriendly.”

In a follow-up interview with Reuters, Gundlach, known on Wall Street as the Bond King, said: “Growth has accelerated already, and the deficit is already going up, so why cut taxes?”

DoubleLine manages more than $115 billion in assets, as of Sept. 30. Gundlach on the webcast reiterated his prediction that the benchmark 10-year Treasury could hit 6 percent “come the next presidential election or a year later.

“I don’t think it is at all strange to think we can tack on something like 75 basis points, on average, with volatility of course, per year for the next four years or so,” he said.

Gundlach predicted the next big move in the U.S. dollar would be down, which is why DoubleLine is still positive on emerging markets. Gundlach said it is “getting very near the end” of the outperformance in U.S. corporate credit debt versus Treasuries and added that quantitative easing has supported risk assets such as corporate credit and high-yield “junk bonds.”

“It is going to be very interesting to see how the markets can hang on to the easy gains that were made in 2017,” Gundlach said. “It’s just so far, so good. The Fed has tightened four times, they’ve embarked on quantitative tightening.”

On the Federal Reserve, Gundlach said Fed chair Janet Yellen is leaving a “pretty good legacy,” with no financial market crisis.

“She got us off of zero (percent) and she started us on the wind down – the quantitative tightening – and so far, nothing has blown up,” Gundlach said.

Asked about bitcoin mania, Gundlach told Reuters that he is not at all surprised by it. “It’s a sign of the times. Like the dot coms back in the day,” he said. Gundlach added that he does not own Bitcoin “just like I never bought a dot-com stock back in the day.” Bitcoin powered to a record high of $11,850 on Tuesday.

(Reporting by Jennifer Ablan; Editing by Cynthia Osterman and Diane Craft)

  • rgeiken

    He is talking about the Tax Cut from his point of view. When taxes are to high, they have an impact on incomes. A lot of people today have stocks and this might mean higher income from dividends and more people moving from Bonds to Stock and this may help drive up Bond Yields. Right now the 3% or so interest rate is too low for long term. Historically Interest rates have been higher. 401Ks and IRAs have put a lot of money into the economy this has dropped interest rates too low. When you look at the Labor Participation Rate, you can see that there are still a lot of people out of work.