Five years into the global QE experiment, there is a growing consensus that it has been at least partially successful. Color DoubleLine CEO Jeffrey Gundlach skeptical. "I believe there is more deflation than we've seen," he told attendees at a luncheon yesterday in New York City.

It’s true that the global economy is recovering. But he wonders if the conundrum of the millennium really can be solved by printing more money and bailing out banks.

Deflation and declining GDP could turn into serious problems in nations like Japan and Italy where the labor force is projected to fall by 40% over the next several decades. The U.S. doesn't share the problem of population contraction but it does face major headwinds that may well be beyond the reach of Fed policy. If QE can’t stop deflation, just give everyone $1 billion, joked the fixed-income investor. That would drive up the "price of Ferraris."

So far this year, as the Fed has begun to taper, the equity markets have gotten a severe case of the shakes, just like an alcoholic in detox. Gundlach preferred using the analogy of the man who jumps off a 85-story building and says after the first 35 floors, “So far, so good.”

Meanwhile, he is somewhat amused by the fear of an interest rate increase—approaching a mass psychosis—caused by what the bond market experienced last spring and summer. The conventional wisdom is that interest rates can’t go down much further, but 10-year Treasury rates have fallen 0.5 percent since early last summer.

Whenever you hear people in the investment business say something will never happen or is impossible, that often means it’s “about to happen,” Gundlach said.

More than 75 percent of Treasury bonds are held at central banks around the world, so if individual investors were to dump them, it wouldn’t be a big deal since they already are underweight these instruments. But if something bad were to happen, the reaction among leveraged short ETFs could trigger a huge scramble. “You might see the mother of all short-covering rallies,” Gundlach said.

Five or six years down the road, a lot of forces will come to a head. More than 50% of all Treasury and mortgage-backed securites are owned by the Fed and to roll over them, the Treasury will need to find buyers. That's exactly the same time asa the median Baby Boomer turns 65 years old, the Medicare and Social Security timebombs go off. Gundlach also noted that most Fed Treasury purchases have occurred among securities of short and intermediate maturities, exposing the federal budget to interest rate hikes.

The problem with the viewpoint that QE leads to inflation is that four key measures of inflation are all lower than they were before QE started. Many people say these prices are contrived, just as many of the same people believe the U.S. economy is still in a recession. Gundlach doesn't "If you believe is inflation is at 6%," then we are in a recession after adjusting for inflation.

He isn't one of those people but he implied that, with growing income and wealth disparity, it's understandable than many Americans feel they and their friends and family all are in their own personal recessions. Since 1960, the share of income going to the top 5% of Americans was 20%; now it's 35%. The debt build-up has marched in lockstep with wealth polarization.

While the global economy has failed to achieve escape velocity, income inequality has gone into orbit. Forget the 1%. Gundlach noted that there is now a huge gap between the 0.1%, those who earn at least $1.5 million, and the 0.01%, most of whom are worth $100 million or more. "QE has very narrowily focused on a tiny sliver of wealth," he said.

Viewed from another angle, those who work hard for their money aren't doing nearly as well as those whose money is working for them.The equity market recognizes this. Since the recession ended, shares of Target and Walmart have mostly moved sideways while luxury retailers like Tiffany have enjoyed a five-fold appreciation in value.

If it continues, the trend has significant implications for corporate profits, which are at an all-time as a percent of GDP, and wages, which are at an all-time low. While he didn't say it, retailers like Walmart will have little choice but to start giving more and more shelf space to their own private label goods at the expense of brand names like Procter & Gamble. As the consequences of inequality wind their way through the economic feedback loop, Gundlach suggested corporate profits could be a victim in many industries.

Unprecedented corporate profits also have juiced one of the strongest bull markets of the last century, and its ascent has closely mirrored the spikes, both up and down, in the Fed's ballooning balance sheet. As gingerly as the Fed has tried to taper in 2014, th stock market is down about 3% and margin debt remains high.

A look at what happened this past week between noon and 3:00 p.m. during some down days provides a peek at what happens when a few margin calls go out. Were margin debt to roll over, stock prices could find support levels were lower than many investors thought.

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