The conflict between the U.S. and China “is going to intensify and will impact the microeconomic environment,” he said, adding that it will cause new distortions to the supply chain that most analysts haven’t paid enough attention to.

According to his website, Zulauf started as a trader with Swiss Bank Corp. in the early 1970s. In 1990, after stints at several investment banks, he launched Zulauf Asset Management, which he sold in 2009 before starting the newer boutique research and consulting firm that also bears his name.

The economic disruptions, he continued, create opportunities for investors. “I’m excited about what can happen next year.”

Gundlach conceded that “there are going to be lots of swings in the market” and said a certain degree of caution will be necessary.

Zulauf noted that steep declines in corporate earnings are likely in 2023. He predicted a drop of 20% to 25% in average earnings for S&P 500 companies.

Commodity prices, however, are likely to rise. Consequently, Zulauf said he would move away from growth stocks in favor of commodity-related equities.

Gundlach said he was “very negative on bonds” for most of the past year, though he did not think it was too early to buy certain commodity-related stocks. One year ago, he noted the S&P 500 was seriously overvalued. According to some yardsticks, it was in the top one or two percentile on a historical basis. And yet in early January, stocks were still cheap relative to bonds.

Before the session ended, Zulauf asked Gundlach if he would buy Chinese assets. “Absolutely not,” Gundlach replied. “I think it’s complete folly for a U.S. citizen to buy Chinese assets at this time.”

“We are in agreement again,” said Zulauf.

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