Insurance companies would also be victims of negative interest rates. Gundlach related a conversation he had with a Swiss insurance executive, who said “our definition of success is trying to [extend] our bankruptcy.”
At the end of the event, Gundlach was presented with four dark clouds on the horizon—U.S. municipal pension finance, the European banking system, American corporate debt or student loans—and asked what would be the next shoe to drop. Problems in municipal finance are underappreciated, he acknowledged.
The corporate bond market will become an immediate problem when “GDP goes negative,” he said. “Like Warren Buffett says, when the tide goes out,” it could become “a nude beach out there.”
But the European banking system, already shaky, is his worry No. 1. Unlike America, Europe doesn’t have any room to cut interest rates. Short of a debt jubilee in which a huge amount of European debt was forgiven, it's hard to imagine what the ECB could do.