The U.S. dollar has just started to decline, and Gundlach expects it could be an extended period of reversal for the greenback. Changes in other monetary conditions are also taking place. “M2 growth is basically the lowest of my lifetime,” Gundlach said, adding he was born in 1959. 

The savings rate, after soaring in 2020, has collapsed, implying there’s going to be weaker consumption. He produced a chart revealing that the decline in the savings rate has been accelerating for many months. Credit card debt continues to climb, and Gundlach suggested consumers are being forced to use plastic to pay for food and gas.  

The index of leading economic indicators also suggests a recession and some of the indicators resemble the approach of a significant recession as they did before the financial crisis. An array of sentiment indicators and the yield curve appear similar to what they were “on the front edge” of past recessions, he said.

Many other signals of a downturn are flashing. For example, the Institute for Supply Management’s Purchasing Managers Index suggests there will be a recession in two months, he added.

Remember all those supply chain bottlenecks the news media was obsessed with a year ago? Today, supply delivery delays are near their lowest levels in 40 years, Gundlach said.

Another recession indicator is the combination of two unemployment measures that occurs when the unemployment rate crosses above its 12-month moving average. Gundlach expects that to happen sometime next year when unemployment climbs above 4%.

Then there is the issue of housing affordability. In the pre-pandemic era, the typical mortgage payment for the average new home was 17% of disposable income, Gundlach said. Today, that figure is 33%.

“A lot of people won’t want to move,” he said. While a mortgage is technically a liability, Gundlach says that ironically it’s many Americans’ best asset, given the current level of mortgage rates.

Housing inventories are sitting at a nine-month high, which Gundlach said is also “coincident with a recession.” For the first time in memory, the refinancing index is at zero, he said.

Even if mortgage rates were to fall 200 basis points, or by 2.0%, 92% of mortgages could not be refinanced, he said. That's one thing making mortgage-backed securities attractive now, since prepayments have always been one of the biggest risks for investors in this sector.