The 4.7 percent figure doesn’t include off-balance sheet items like loans to Social Security, disaster aid and other incidental transfers. One ominous sign is “waning demand” at 10-year Treasury auctions, where bidding is at a post-financial crisis low.
With the dollar weakening slightly, gold has climbed 13 percent since last summer. Gundlach said he was long gold, but added he was uncertain how much further it would climb.
So far this year, the bond market has performed “extraordinarily well” thanks to the bounce back in risk assets, he noted. Investment-grade bonds are up 7.7 percent while high-yield issues are up a tad more at 8.6 percent. This narrow difference reflects concerns about credit quality in the junk bond market.
Asked if the markets hold a veto power over the Fed, Gundlach said it depends on what the markets do. If stocks tumble 50 percent, the “markets have a veto,” he declared. If they fall 8 percent, “it’s the data.”