Gundlach Says Market is “Too Bearish”
Robert Huebscher
March 24, 2009


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Gundlach issued a warning to those who short the market, particularly through credit default swap (CDS) positions.  Another market decline, he said, could be accompanied by a blowup in the CDS market and short investors – even if they are right about the market direction – will suffer because their CDS counterparty may not be there to pay them.

Unemployment data for the current recession is “unremarkable,” according to Gundlach – completely normal in the context of previous recessions.  The chart below shows job losses in the current recession on a path well within the bounds of other post-World War II recessions.

Gundlach forecast higher movement in the value of the dollar, primarily because “de-leveraging is a short position on the dollar.”  Along these lines, he expects continued deflation as his “base case” and noted that both the dollar and commodities indices are at the same levels as five years ago.

Fixed income markets

Addressing the fixed income markets, Gundlach offered these comments:

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