The increase in day-to-day repurchase agreements could lead the Federal Reserve to widen its balance sheet, according to Jeffrey Gundlach, Director of Investments at DoubleLine Capital.
“Is it an impending disaster? The Federal Reserve will use this warning signal to return to the balance sheet enlargement, “Gundlach said during the online broadcast of his $ 54 billion Total Bonus Bonus Return fund. step forward “towards more quantitative easing,” he added.
The US Federal Reserve on Wednesday injected US $ 75 billion into the US money markets to stifle the rate hike on Treasury-guaranteed day loans, known as repurchase agreements. That followed the $ 53 billion cash injection on Tuesday. The Fed should start broadening its balance sheet to “try to free the plumbing from the banking system,” said the fund manager.
The measures could encourage the Fed to embark on a “QE lite”, he said.
The Federal Reserve’s Open Market Committee is expected to reduce its benchmark rate by 0.25% at its Wednesday meeting, the second cut this year. The bond market reflects two new Fed cuts this year and one in 2020, he said.
On the macroeconomic scene, Gundlach reiterated his view that the chances of a recession in the US are 75% ahead of the November 2020 presidential election. Once the recession arrives, Gundlach predicts an explosion of public debt. .
Gundlach also warned of the likelihood of a recession last week, citing signals that include the August steepening of the yield curve that intensified this month.
DoubleLine Total Return, which invests primarily in mortgage-backed securities, reported approximately 5.4% this year through September 17, better than 72% of its competitors in Bloomberg. Its five-year average annual return is 3.4%, higher than 82% of its competitors.
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“It’s not a good idea to bet on lower interest rates.” He added that investors probably saw the minimum of the year among the 10-year benchmark returns, which fell to multi-year lows of 1.42% earlier this month.
Fed policymakers will probably say as little as possible at Wednesday’s meeting. “I can guarantee you that you will not hear Jerome Powell’s and the Fed’s” mid-cycle adjustment “on Wednesday, he said.
Gundlach has estimated near zero the possibility of concluding a trade agreement between the United States and China before the presidential elections of 2020. He said that China had no incentive to reach an agreement before the elections.
Bad news for the US dollar: the next big move for the currency has declined, said Gundlach, adding that investors should diversify into other currencies and markets.
It’s also less positive with gold in the short term. But for a permanent portfolio position, gold must be preserved, he said, adding that “the time has come to look for a better opportunity to buy gold”.
If the Democratic primaries took place today, Gundlach said he believed that Elizabeth Warren would win the presidential nomination. “It will not be Joe Biden.”