If Jeffrey Gundlach is to be believed, U.S. stocks now have a 76.8% chance of taking out their March 2020 lows, caused in part by a new wave of unemployment, this time among white-collar workers.

In a freewheeling presentation yesterday in which he painted Federal Reserve Chairman Jay Powell as “Superman” and regaled listeners by playing—in its entirety—the Fifth Dimension’s 1967 bubblegum pop hit “Up Up and Away” as a metaphor for unprecedented monetary and fiscal stimulus leading to ever-higher levels of debt, Gundlach, the CEO and CIO of DoubleLine Capital, stuck to a familiar theme: Investors should remain cautious because prices across several asset classes are likely to decline.

Especially stocks. According to Gundlach, stocks are up more than 40% from their March lows and the Nasdaq 100 is at record highs, though the rally in the S&P 500 and the Dow Jones Industrial Average has taken a breather in recent days. Like the record-breaking bull market that ended in March, the current rally is built upon debt-driven stimulus.

“We are not up, up and away in terms of economic growth, though,” said Gundach

Gundlach’s sarcastic video rendition of “Up Up and Away” included scenes from the Albequerque, N.M., hot air balloon festival, hundred-dollar bills falling from the air, and Powell’s head superimposed on Superman’s body. The U.S. national debt will cross $25 trillion for the first time this week, according to Gundlach. Public debt grew by $3.5 trillion this year even as the GDP has shrunk due to the economic shutdown caused by Covid-19.

The rally—and almost all of the gains of the past 11 years—have been fed by increasing levels of debt created via monetary and fiscal policy. Likewise, all of the jobs created since the global financial crisis and then lost in the coronavirus-caused downturn were largely an illusion and many will never come back, he said.

“Ever since the global financial crisis supposedly ended, the growth was just an illusion,” said Gundlach. “All the jobs that were created in that huge run were lost in a six-week period. Will it be temporary? Some of it. But will all of it be temporary? Of course not, and we will not get all of it back quickly.”

Gundlach argued that historically, with Japan as an example, increasing the debt to over 100% of GDP has been destructive to economic growth. In 1998, Japan’s debt reached 120% of its GDP and since that time the country has had no GDP growth in real dollar terms, said Gundlach.

Now, the U.S. is growing its national debt at a higher rate than Europe or Japan as a recession continues to weigh on tax receipts, creating a deficit that will lead to a “big blowout,” he said.

Superman To The Rescue
But there’s still little evidence of recessionary forces impacting financial markets, said Gundlach, largely because Fed action has helped markets ignore the likelihood of continued credit downgrades in the near term and potential defaults over the long term.

“Superman comes to the rescue and things have started to improve, but we’re still having a hard time getting back to where we are,” said Gundlach.

The next market drop could mark the end to a type of “American exceptionalism,” said Gundlach, who noted that U.S. equities have massively outperformed their global peers across several recessions and downturns and are now trading at huge multiples to the rest of the world.

Gundlach also said that most of the American exceptionalism in the period following the dot-com crash of the early 2000’s was caused by a narrow “super six” selection of stocks. If Microsoft, Apple, Amazon, Netflix, Google and Facebook were excluded from U.S. stock indices, their performance would roughly mirror that of the rest of the world.

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