“I strongly believe that Europe will outperform, particularly when the next recession comes because when it does come my highest conviction idea is that the U.S. dollar is going down because the U.S. dollar tracks the twin deficits,” Gundlach said, noting that both the trade deficit and the budget deficit have zoomed.
“And when these deficits go up, the long-term trend is the dollar will go down,” he added.
So while Gundlach believes that U.S. equities remain overpriced, he noted they remain fairly priced versus U.S. bonds.
“The stock market is wildly overvalued versus most metrics, though it’s still not overvalued versus bonds because in spite of bonds being down so much year to date, they’re still negative on a real basis,” he explained.
“Bonds are supposed to be boring, but year to date there are bond funds that call themselves core bond funds that are down 12% on total return. On an annualized basis we’re talking about a massive bear market,” he added.
And that calls to mind his monicker as the "The New Bond King,” a title bestowed upon him when he appeared on the cover of Barron's in 2011.
“Who wants to be Bond King these days?” he joked.