DoubleLine Capital CEO Jeffrey Gundlach pointed to the country's "suicide mission" during a webcast on Tuesday, as deficits rise along with interest rates, a theme he has stressed previously. But he also said investment-grade bonds are in risky territory as they hit valuation highs.
"It's very strange that we have a rising deficit so late in an economic expansion and what's supposedly a good economy," the "Bond King" said. GDP growth "is nominal at 5.5% year over year and real is 3.0%, so for the last year it has been a good economy. It's very bad that the deficit is rising."
The U.S. recorded a $100.5 billion budget deficit in October, up from $63.2 billion a year ago, according to a Bloomberg report earlier this week. This rising deficit is tied to tax cuts and increased spending, among other factors. In the past fiscal year, the budget gap hit $779 billion.
"When the deficit goes up, it's stimulative to the economy. That's good in the short term, but it's borrowing from the future," he said. With the federal government adding to its borrowing and the cost of that borrowing on the rise, the U.S. fiscal situation could turn into "a problem within five years."
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If loans for Social Security are included, Gundlach explains, the national debt for the past year is roughly $1.3 trillion, representing about 6% of GDP.
