In some areas, home inventories are virtually “non-existent,” Gundlach said. Moreover, there are now 10 times real estate agents than homes for sale in some regions.
Food price inflation could “drive social unrest” since it puts pressure on people at the lowest end of the income ladder, he said. Other price trends are likely to be temporary.
Used car prices, for example, have “practically doubled” in the last year. After recently shopping for a truck, he discovered the prices for these used vehicles were almost identical to new ones. “That’s not sustainable,” he said.
All these crosscurrents leave Gundlach “very negative” on the U.S. dollar. When one combines the trade and federal budget deficits, the twin shortfalls top 20% of GDP, or more than double “what used to be considered a bad level.” These are among the factors that suggest the dollar could fall 20% or more against a basket of currencies.
When it comes to the stock market, Gundlach noted that the ratio of U.S. equities versus the rest of the world has stopped climbing after a decade of American outperformance. If the dollar starts “falling in earnest,” that ratio could follow.
That’s one reason why he turned bullish on European stocks for the first time since founding DoubleLine in 2010. Europe and the rest of the world have not enjoyed the massive level of stimulus that America has.
This raises the possibility that the U.S. economy could experience “a significant reversal” when certain unemployment benefits and income transfer programs expire. In other nations where stimulus programs have been smaller, the potential threat isn’t as great.
Right now, the strength of retail investors is “completely off the charts,” Gundlach said. Asset flows from global investors into both developed and emerging markets has been “massive.”
The same is true for commodities, where some price charts have gone “vertical,” Gundlach said, adding that prices for some commodities could be due for a pullback. Lumber, for example, which soared five-fold, recently experienced a 25% price decline.
Gundlach added that he doesn’t really have a short-term view on gold but he expects it to go much higher over the long term.