Investment guru Jeffrey Gundlach warns that the dollar is in a dangerous position.
“The dollar's next big move will be to the downside,” the DoubleLine Capital chief executive officer tweeted this week.
"One of the reasons I think the dollar has stayed strong this year has been the yield starvation that exists in the world," said the bond king.
"Investors have been forced out of need and yield starvation to buy U.S. assets naked; meaning, they're taking the dollar risk. And in spite of all that money coming into the U.S. dollar and not being hedged, the dollar has barely budged this year," said Gundlach
"To me, that reinforces my forecast that the dollar's next big move will be to the downside," he said.
"Dollar cycles, as I've said repeatedly in the past, tend to go on for multiple years and be quite persistent. And they are highly correlated with the fed funds rate, particularly the fed funds rate versus what is going on in other central banks."
Gundlach earlier this month said the odds of a recession have fallen and warned investors to steer clear of corporate debt because of rising risks of a weak dollar.
There’s a 35% chance of a recession by the end of next year, the bond manager said Tuesday. In September, he predicted 75%.
“We’re clearly at a lower level now,” Gundlach said in a webcast about the $54 billion DoubleLine Total Return Bond Fund. That view is “based upon consumer confidence holding up. Based on the leading economic indicators have not gone below zero and they have always gone below zero prior to any recessions.” he said, Bloomberg reported.
While the bull market shows no signs of abating, investors and analysts have been watching closely for any weakness in the economy. Gundlach’s forecast is in step with economists who see the recession odds at 33%.
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