Gundlach Bearish on Economy, Sees 'QE Lite'

The Federal Reserve Open Markets Committee is widely expected to cut its benchmark rate 0.25% when it meets Wednesday, the second reduction this year. The bond market reflects two more Fed cuts this year and one in 2020, he said.

On the macroeconomic scene, Gundlach reiterated his view that chances of a U.S. recession are 75% before the November 2020 presidential election. Once a recession does come, Gundlach predicts that there will be an explosion in the national debt.

Gundlach also warned of the recession likelihood last week, citing signals including the August yield-curve inversion that has re-steepened this month.

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Here are some other highlights from the webcast:

• "It's not a great idea to be betting on lower interest rates." He added that investors have probably seen the low of the year in benchmark 10-year yields, which sank to a multi-year low of 1.42% earlier this month.
• Fed policy makers will probably say as little as possible at Wednesday's meeting. "I can guarantee you won't hear 'mid-cycle adjustment' from Jerome Powell and the Fed" on Wednesday, he said.
• Gundlach put the chances of a U.S.-China trade deal before the 2020 U.S. presidential election at almost zero. He said China has no incentive to make a deal before the election.
• Bad news for the U.S. dollar: the next big move for the currency is down, Gundlach said, adding that investors should be diversifying into other currencies and markets.
• He's also less positive on gold in the short-term. But for a permanent portfolio position, gold should be held, he said, adding that "now is the time to be looking for a better buying opportunity in gold.
• If the Democratic primaries were held today, Gundlach said he thinks Elizabeth Warren would win the presidential nomination. "It's not going to be Joe Biden."

–With assistance from Melissa Karsh.)