While the economy may begin to post positive growth again in the third quarter of 2020, it’s simply “not plausible” that GDP will return to its previous levels in the near term, said Gundlach.
But in time, the U.S. economy may actually be in a “better place” as the recovery is likely to focus on a more resilient economy with more manufacturing and self-sufficiency in the U.S. and less emphasis on the American consumer, he said.
"The biggest winner out of all of this may be the American economy once we get past a rough patch," Gundlach said.
Gundlach’s presentation, titled “A Tale Of 2 Sinks,” referred to the “kitchen sink” approach to stimulus taken by fiscal policy makers and the Fed. Gundlach said that the Fed’s monetary stimulus has already eclipsed all of its accommodative interest rate and quantitative easing polices used during the 2008-2009 global financial crisis and “Great Recession,” while Congress’s $2.2 trillion fiscal stimulus is equally unprecedented.
Fiscal and monetary policy makers will each need to find a “second sink,” at the very least, to cope with the crisis, said Gundlach, and the total stimulus is likely to reach $10 trillion, which he called a “conservative” estimate.
The Fed’s monetary stimulus is choosing “winners and losers” in fixed-income markets, creating irrational disparities in performance between different asset classes, and at some point “another sink” will be necessary to restore some rationality to financial markets, said Gundlach.
Gundlach added that though the bill recently signed into law by President Donald Trump offers airlines $50 billion in relief, none of the stimulus should go to airlines that were responsible for $45.5 billion of stock buybacks over the past decade.
“Let them go bankrupt. The planes are not going to disappear,” he said.
Gundlach also warned about “paper gold” in gold futures and certain ETFs where there is no physical gold backing the financial instrument. There is not enough physical gold to cover all of these assets, he said.