Billionaire “Bond King” Jeffrey Gundlach says the US will likely witness one crisis this year that would force the Fed to resume a rate-cutting cycle.
In a new CNBC interview, the founder and CEO of investment firm DoubleLine Capital says he sees the Fed cutting rates this year, but it won’t be related to the Fed’s dual mandate of achieving maximum employment and an average of 2% annual inflation.
“I do think they’ll cut rates, but I don’t think it’s going to be because of much better inflation data because I don’t think it’s going to get much better. I doubt the unemployment rate is going to be a shocker in the near term, like in the next few months.
But I do think they’ll cut rates because some liquidity problems may come up. So I do think they’ll probably cut rates by year end, and I still think it’s probably less than the market thinks, but I’m closer to the market now because I’ve stayed at two and the market has gone from five or six down to two and a half [cuts].”
According to Gundlach, some institutions are starting to witness liquidity problems. Gundlach uses Harvard’s recent bond sale to show that US-based entities are in need of cash, but says other institutions are having the same issue.
“The thing that I feel is starting to get talked about, and I think might be significant in the next market problem is this illiquidity issue that [has] developed and it’s getting some play on the newswires with Harvard and some elite universities where they don’t have any money.
They’re asset-rich but they’re cash-poor. Harvard has a $53 billion endowment, and they’ve tapped the bond market now twice for basically operating cash. And the reason is – and I’m just using Harvard as a placeholder because this has been in the news and reported with statistics – they report 40% of their endowment in private equity.
I suspect that another big slug is in private credit, which has been a booming asset class. We’re starting to see stories of some of the faster-moving university endowments saying, ‘We might want to exit some of our commitments…’
I think this is going to be an issue.”
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