2023 could offer cyclical downturn in a landscape of secular change as the world appears on the threshold of global recession. Moreover, trends that for decades have driven economies, markets, monetary policy and governance might be staging reversals. In this first of three segments (0:08), DoubleLine CEO Jeffrey Gundlach and moderator DoubleLine Deputy Chief Investment Officer Jeffrey Sherman on Jan. 4, 2023, discuss the Macroeconomic State of Play with their guests James Bianco, President and Macro Strategist at Bianco Research; Danielle DiMartino Booth, CEO of Quill Intelligence; author and Fox Business anchor Charles Payne; and David Rosenberg, President of economic consulting firm Rosenberg Research & Associates.
Mr. Sherman (2:28) begins the segment asking what is “the path setting forward” for inflation in 2023 and “how that dictates into the macroeconomy.” Among the answers, Ms. DiMartino Booth notes recent Federal Reserve paper would indicate monetary tightening filtering into the economy in 12 months, thus reaching the economy in March. She already sees “disinflationary pressures multiplying left and right.” Citing declines in ISM prices paid and quits in transportation and warehousing jobs, Mr. Payne expects (3:37) people’s predominant preoccupation will shift to recession “quicker than anyone’s anticipating,” a downturn which he expects to be “huge.” Mr. Gundlach (6:27) expects inflation to fall to “about 4% for the May (CPI) report.” He takes issues with “completely implausible” consensus forecasts of the CPI falling rapidly from 9.1% to make a dead stop at 2.5% for three years. In the event of a rapid decline to 2.5%, Mr. Gundlach thinks the CPI will continue to fall and might make a negative year-over-year print sometime during 2023.
Much of the discussion focuses on monetary policy at the Fed, which is being driven by more than inflation, the panelists observe, the killing of the “Fed put.” The unspoken aim of the Fed? Mr. Rosenberg (22:02) thinks “they want to do a reset of valuations in the markets, and, I mean, principally the stock market. Powell can’t come out and say, I want to destroy your 401K.” Powell, Mr. Bianco notes (33:55), “wants the Fed put gone. He wants the markets to stop trading on liquidity. The problem is that’s exactly what they are trading on right now. Bad news is good news.”
The panel discussion turns (41:59) from the Fed to Congress and the White House. “I’m more worried about the politicians,” Mr. Gundlach says, “because once the economy rolls over what we’ve seen is massive relief, free-money spending…. We thought that $700 billion was a big stimulus back in ’08. Now we’re doing trillions and trillions. Maybe the next time it’s not $1,000 or $1,200 a month. Maybe it’s $50,000 a month.” Mr. Payne says politicians would see such transfer payments as “a good way to get re-elected.” Ms. DiMartino Booth, however, thinks the Republican majority in the House of Representatives, “is going to want their pound of flesh” and could resist cutting those checks.
The panelists are generally bearish on the U.S. economy’s ability to avoid entering recession in 2023. Mr. Rosenberg (46:30), for example, finds no significant sources of “vitality for the economy,” ticking off a corporate profits recession, no capital spending; little excess savings, with “what’s left in the wrong hands... the fat cats who aren’t going to spend it.” Meanwhile, the lagged effects of Fed tightening, he notes, are going to kick in, with consumers facing rising unemployment and housing “in a tailspin.”
Some people are putting their hopes in the reopening of China’s economy after the most recent lockdown regime. Mr. Bianco (53:19) pours cold water on that idea. While China is going to reopen, he says, “they’re not going back to 2019. They’re not going to get 40 million people riding the subway, which is what they used to have in the major cities a day, going to 12-hour shifts, manufacturing stuff to ship to the West.”
Mr. Gundlach is CEO of DoubleLine. In 2011, he appeared on the cover of Barron's as "The New Bond King." In 2013, Institutional Investor named him "Money Manager of the Year." In 2012, 2015 and 2016, he was named one of "The Fifty Most Influential" in Bloomberg Markets. In 2017, he was inducted into the FIASI Fixed Income Hall of Fame. Mr. Gundlach is a summa cum laude graduate of Dartmouth College, with degrees in Mathematics and Philosophy.
As DoubleLine’s Deputy Chief Investment Officer, Jeffrey Sherman oversees and administers DoubleLine’s Investment Management sub-committee coordinating and implementing policies and processes across the investment teams. He also serves as lead portfolio manager for multi-sector and derivative-based strategies. Mr. Sherman is a member of DoubleLine’s Executive Management and Fixed Income Asset Allocation Committees. He can be heard regularly on his podcast “The Sherman Show” (Twitter @ShermanShowPod, ShermanShow@Doubleline.com) where he interviews distinguished guests, giving listeners insight into DoubleLine’s current views. In 2018, Money Management Executive named Jeffrey Sherman as one of “10 Fund Managers to Watch” in its yearly special report. Prior to joining DoubleLine in 2009, Mr. Sherman was a Senior Vice President at TCW where he worked as a portfolio manager and quantitative analyst focused on fixed income and real-asset portfolios. He was a statistics and mathematics instructor at both the University of the Pacific and Florida State University. Mr. Sherman taught Quantitative Methods for Level I candidates in the CFA LA/USC Review Program for many years. He holds a B.S. in Applied Mathematics from the University of the Pacific and an M.S. in Financial Engineering from the Claremont Graduate University. Mr. Sherman is a CFA® charterholder.