On the eve of one of the most contentious presidential elections in recent history, DoubleLine CEO Jeffrey Gundlach said on Monday that it was “plausible” that the U.S. could split into more than one nation in the coming years. The remark came near the end of a webcast featuring the high-profile bond fund manager and David Rosenberg of Rosenberg Research.
“We have so much discord and we have a constitution that is very old” and hasn’t changed very much, he said. If the Bill of Rights were put to a vote today, he said it is doubtful that all of it would be approved. Property relations, upon which the Constitution placed a premium, are out of whack in his view.
Today, there is a meaningful segment of the American public that is willing to riot, to “get rid of the police,” and to allow unlimited immigration. Another very large group of people wants no part of this.
The situation already is manifesting itself in the decision of many affluent Americans to relocate during the pandemic. “You can’t find a moving company to get you out of southern California,” he noted.
Gundlach and Rosenberg agreed that Western democracies were facing a unique set of challenges and simply are failing to deliver satisfactory outcomes for their citizens. Economic growth has declined over the last two decades, leaving many millions of people feeling marginalized.
Rosenberg called it “perverse irony” that China is emerging from the Covid-19 pandemic in a much stronger position than most other nations. But he and Gundlach concurred that China's dictatorship is producing a rising living standard that western democracies can not rival.
The trends are not encouraging. “We are 10 years away from China supplanting the U.S. in PPP (purchasing power parity) terms,” Rosenberg said. Neither participant addressed the question of how long China's communist government can sustain its skilled manipulation of the economy.
Regarding the presidential election, Gundlach said he still believed President Trump would be re-elected, but he had far less conviction about who would win than he did in 2016. Four years ago, former Secretary of State Hillary Clinton was a candidate with massive baggage. Gundlach was among very few observers who predicted Trump's victory early in the 2016 election cycle.
The present situation is quite different. “Whoever loses will throw a fit” and litigate, Gundlach predicted. If Biden were to lose, America could easily see demonstrations, rioting and other forms of social unrest, he said.
Covid-19 could play a major role in depressing turnout among young voters in key Midwestern states like Wisconsin, Michigan and Ohio, where there are huge universities, some with 100,000 students and major liberal, affinity demographics. In this pandemic era, these universities are partially open.
Rosenberg agreed with Gundlach that the polls could be off, but he questioned whether polls showing former Vice President Biden with an 8% to 10% lead could be completely wrong. Most, Rosenberg noted, were off by no more than 3% four years ago.
Rosenberg also argued that, from an economic viewpoint, either a red wave or a blue wave was preferable to the split decision—with Biden winning the White House and Republicans retaining the Senate—that Gundlach said was possible. Gundlach believes there is a significant subset of the electorate that dislikes the Democratic agenda and simultaneously views President Trump as a "monster."
If this line of reasoning is accurate, some of these folks could split their ticket and vote for Biden and GOP congressional candidates. The proof of this thesis on election night could come in Texas. Two years ago, that state's governor, Greg Abbott, received almost 400,000 more votes than its junior senator, Ted Cruz.
If that divided goverment scenario materializes, Sen. Mitch McConnell will still control the Senate and “all he’ll do is a $500 billion stimulus.” That won’t be "nearly enough" to fill the output gap, Rosenberg argued.
Without a stimulus, both men agreed that the economy could experience an eviction crisis that could turn into a mortgage crisis as cash-strapped landlords are forced to default on their mortgages.