Despite the stock market’s impressive rebound this year, many of the market leaders, particularly some FANG stocks, are still down nearly 20 percent. Moreover, he maintained that the S&P 500 would “take out” its December lows earlier in 2019 than it did last year in December.

The job market remains tight and employers are finding filling the slots they have to be an arduous task. That’s why wage growth is starting to take off. But Gundlach maintained the single biggest problem is, sadly, the quality of labor.

The Fed is suggesting that even if inflation were to trend up to the 3 percent area it wouldn’t be a problem. That’s based on the logic that inflation “needs to atone for its past sins” of ultra-low inflation early in decade, a dubious proposition. In Gundlach's view, the fact that there are more $100 bills in circulation today than $1 bills “belies the conventional wisdom” that there is no inflation.

Consumer confidence has rebounded smartly with the stock market. But he observed that while consumers have a rosy view of the present they remain gloomy about the future.

And with the prospect of trillion-dollar deficits looming out there as far as the eye can see, it’s little wonder why. The total debt-to-GDP ratio stands at 210 percent of GDP, up from 170 percent before the Great Recession.

Back in 2011 and 2012, Gundlach noted that the trillion-dollar federal deficits from the Great Recession would moderate to manageable levels until the end of the decade. That’s when the costs arising from baby boomers taking Medicare and Social Security would start to spiral out of control—at the same time as all the 10-year Treasurys sold from 2008 through 2011 needed to be refinanced. Now those bills are just beginning to come due and some projections call for a string of federal deficits exceeding $2.6 billion in the middle of the next decade.

The problem in Gundlach’s view is one of insufficient taxation or overspending. In all likelihood, it’s both. Since 2015, federal taxes have gone from 18 percent to 20 of GDP. Between 1930 and 1945, taxes went from 5 percent to 20 percent of GDP. By the mid-to-late 1940s, the working poor were taxed at a 20 percent rate. While the ultra-wealthy faced a 91 percent rate, nobody paid it thanks to all the loopholes. All this was half a century before entitlements and other mandatory spending consumed two-thirds of the federal budget, or $2.5 trillion annually and counting.

Republicans and Democrats alike couldn’t care less about the deficit. “It will probably change all at once,” Gundlach noted. In 2012, 82 percent of Republicans and 62 percent of Democrats said deficit reduction was important. Today, those numbers have fallen to 54 percent and and 44 percent, respectively.

It reminded Gundlach of the man who jumps out of the Empire State building and says after the first 85 floors, “So far, it’s OK.”

Deficits explode during recessions. He noted that three years after the 2001 recession, the deficit equaled 5.8 percent of GDP and after the 2008 recession it was 8.8 percent. “Long-term rates will have to go up in the next recession,” he said.