Gundlach –The End of American Exceptionalism

Since 2009, the U.S. stock market has outperformed the rest of the world by a factor of nearly three. But that “American exceptionalism” may transition to a movement to break up monopolies, according to Jeffrey Gundlach.

Gundlach spoke to investors via a webcast, which he titled “Superman,” and the focus was on his flagship DoubleLine Total Return Bond Fund (DBLTX). Slides from that webcast are available here. Gundlach is the founder and chairman of Los Angeles-based DoubleLine Capital.

The exceptional U.S. performance was due to a group of companies he called the “super six”: Facebook, Amazon, Apple, Alphabet, Netflix and Microsoft. Without those six stocks, the S&P “494” would be up about 12%, only slightly better than the MSCI all-world, ex-U.S. index.

Price gains and earnings growth across those six stocks have far outpaced the earnings of the other 494 stocks. There has been no EPS growth in those 494 or in the rest of the world, according to Gundlach.

Gundlach’s view is that the dominance of those six stocks could lead regulators to break them up, especially if the economic recovery falters.

That is not Gundlach’s only fear. If Biden “or some like-minded politician” wins the November election, Gundlach said, he could increase corporate taxes. “That will take away some of the underpinnings of the market.”

Gundlach began his presentation with a video featuring a soundtrack of a 1967 hit song, Up, Up and Away, by the pop group Fifth Dimension. The video featured images from the Albuquerque hot balloon festival, a clicking debt clock and Fed Chairman Jerome Powell in a Superman costume, replete with dollar bills floating through the air.

The balloon launch was a metaphor for the soaring national debt, Gundlach said, driven by the various liquidity facilities that were enacted by the Fed, starting in March. “We are not up, up and away in terms of economic growth, though,” he said.

Public debt grew by $3.5 trillion this year, despite a contraction of $2.5 trillion in GDP. Last year, debt grew by slightly more than GDP in real and nominal dollars. “This debt is really big,” Gundlach said.