US stocks will suffer further falls, billionaire bond trader and investment guru Jeffrey Gundlach said on Monday, warning of a long-term bear market.
Speaking on CNBC TV, Gundlach, who is the chief executive of DoubleLine Capital, said passive investing has reached “mania status” and will exacerbate market problems, Reuters reports.
“I think it is a bear market. I think we’ve had the first leg down and the second leg down is usually more painful than the first leg down,” said Gundlach, who oversees more than US$123 billion in assets.
“I think this lasts a long time. It has a lot to do with the fact that, I believe, that we’re in a situation that is … highly unusual – that we’re increasing the budget deficit so spectacularly so late in the cycle while the Fed is hiking interest rates.”
Gundlach said the Fed should not raise rates this week but will. “The bond market is basically saying, ‘You know, Fed, there’s no way you should be raising interest rates’,” he said.
The US central bank’s quantitative tightening campaign has made markets nervous because of the ultra-low levels that have remained in place for several years, Gundlach said.
“The problem is that the Fed shouldn’t have kept them (rates) so low for so long. The problem is, we shouldn’t have had negative interest rates like we still have in Europe. We shouldn’t have had done quantitative easing, which is a circular financing scheme,” he said.
Gundlach also said the China-US trade war gets worse from here.
“China doesn’t like to be told what to do by President Trump,” he said. For its part, “I think they (the United States) will probably ratchet up the tariffs.”
Gundlach took a shot at passive investment strategies such as index funds, declaring the investing strategy a “mania” that is causing widespread problems in global stock markets.
“Passive investing and robo advisers … are going to exacerbate problems in the market because it’s hurting behavior,” he said.
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