Jeffrey Gundlach said yet again that the U.S. economy is gorging on debt.
Echoing many of the themes from his annual "Just Markets" webcast Tuesday, Mr. Gundlach took part in a roundtable of 10 of Wall Street's smartest investors for Barron's. He highlighted the dangers especially posed by the U.S. corporate bond market.
Prolific sales of junk bonds and significant growth in investment-grade corporate debt, coupled with the Federal Reserve weaning the market off quantitative easing, have resulted in what the DoubleLine Capital boss called "an ocean of debt."
The investment manager countered President Donald J. Trump's claim that he's presiding over the strongest economy ever. The growth is debt-based, Mr. Gundlach said.
His forecast for real GDP expansion this year is just 0.5%. Citing numbers spinning out of the USDebtClock.org website, Mr. Gundlach pointed out that the U.S.'s unfunded liabilities are $122 trillion — or six times GDP.
"I'm not looking for a terrible economy, but an artificially strong one, due to stimulus spending," he told the panel. "We have floated incremental debt when we should be doing the opposite if the economy is so strong."
Mr. Gundlach is coming off another year in which his Total Return Bond Fund outperformed its fixed-income peers. It returned 1.8% in 2018, the best performance among the 10 largest actively managed U.S. bond funds, according to data compiled by Bloomberg.
Mr. Gundlach expects further declines in the U.S. stock market, which recently have steadied after reeling for most of December. Equities will be weak early in the year and strengthen later in 2019, effectively a reversal of what happened last year, he said.
"So now we are in a bear market, which isn't defined by me as stocks being down 20%," he said. "A bear market is determined by the way stocks are acting."
Rupal Bhansali, chief investment officer for international and global equities at Ariel Investments, picked up on Gundlach's debt theme. Citing General Electric's woes, she urged investors to focus more on balance-sheet risk rather than whether a company could beat or miss earnings. Companies with net cash are worth looking at, she said.
Despite the surge in outstanding debt last year, markets aren't signaling any particular concern over the U.S. government's creditworthiness. The yield on benchmark 10-year Treasuries dropped to 2.70% Friday from a 2018 high of about 3.26% in October.