Jeffery Gundlach

Donald Trump will be our next president, according to Jeffrey Gundlach, because Hillary Clinton is such an ineffective campaigner. Gundlach did not endorse Trump or say whether he would vote for him. But he said a Trump victory is inevitable – and offered some insight into how markets will react.

Gundlach spoke to investors on May 12 to provide updates on the DoubleLine closed-end funds, DBL and DSL. He is the founder and chief investment officer of Los Angeles-based DoubleLine Capital, known for its fixed-income mutual funds and ETFs.

Trump will win, Gundlach said, because “Hillary Clinton has her hands full with this cranky socialist from Vermont who has now won 19 states. If she is such a great candidate, why is she losing to this fringe guy from Vermont? Why couldn’t she beat a community organizer, junior senator eight years ago if she is such a great candidate?”

“It’s clear,” he said, “that everyone has underestimated Trump from the beginning.”

Gundlach said he initially predicted a Trump victory on January 11, when the Barron’s “roundtable” was published and that he has reaffirmed his prediction over the last several months.

When Trump wins, Gundlach said, investors should expect higher deficits. Trump has advocated higher spending on the military and a willingness to take on debt. The impact, Gundlach said, would be that inflation would be more likely.

Gundlach commented on a number of other topics related to the economy and the capital markets.

Monetary policy and the debt markets

Don’t expect a Fed rate hike, according to Gundlach.

He discounted the Fed’s forecast of two rate hikes and said that one hike “would be challenging enough.” The futures markets are forecasting a 50% chance of one rate hike, he said. Fed Chairwoman Yellen is the most dovish Fed member, he said, and at the other extreme are two “rebellious” members who are calling for rate hikes.

The idea that the Fed would pursue a “helicopter money” policy, where it would distribute funds directly to Americans, is now a “reasonable possibility,” Gundlach said, unlike six or eight years ago when such talk was dismissed as coming from the “lunatic fringe.” Gundlach said that policy is one way to produce inflation, and it is “just a question of how much is enough and not too much.”

In Sweden, he said, there is a proposal to distribute $10,000 to all its citizens, although this is not truly helicopter money, because there would be a simultaneous reduction in safety nets.

For the next couple of years, investors should expect a “quiescent” rate environment, he said.

But Gundlach predicted that debt markets will face problems in a couple of years. Between 2018 and 2020, he predicted, a lot of corporate and government debt will mature and need to be rolled over. This won’t affect Fed policy now, he said.

Beyond that time frame, Gundlach forecast that the 30-year interest rate would be greater than 6% in 10 years. By that time, he said, there will be “a lot more clarity about entitlements.” He noted that the present value of federal government unfunded liabilities is $120 trillion.