US economy shows signs of slowing despite lofty growth projections: Jeffrey Gundlach

Most of the recent growth projections for the U.S. economy are way too optimistic, as they are mainly based on a debt scheme, says Jeffrey Gundlach, chief executive of DoubleLine Capital. In fact, some signs of slowing up are evident in the U.S. economy, which could lead the country to another recession in one or two years, warns the Bond King.

The Atlanta Federal Reserve recently forecast real gross domestic product at 1.6 percent, and a Citigroup Inc. basket of economic indicators has fallen to its lowest level since the financial crisis, Gundlach said on an asset-allocation webcast Tuesday. The Atlanta Fed figure can be volatile.

The probability of a recession in the next two years “would be extremely high,” Gundlach said. “Twelve months I’d give you a recession probability that’s 50-50. Next six months I’d probably have it down at 30 percent.”

Gundlach, whose Los Angeles-based firm oversaw more than $130 billion as of the end of March, also said:

• The odds of a Fed rate cut in the next 12 months are about 70 percent.
• The Fed is now “policy fluid” under Chairman Jerome Powell, who has repeatedly changed his comments about plans for interest-rate changes.
• The economy has been growing largely because of a debt scheme as the U.S. increases spending and fuels deficits beyond expansion in output.
• The bond market is “extremely exposed” to a downturn in the U.S. dollar, because some foreign buyers have been purchasing Treasuries without currency hedges.

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