Jeffrey Gundlach, founder and chief executive of DoubleLine Capital, predicts a recession could come within the next four months, saying the dramatic steepening of the U.S. Treasury yield curve typically precedes an economic downturn.
"In all the past recessions going back for decades, the yield curve starts de-inverting a few months before the recession," he said in a Twitter Spaces audio chat Thursday with Jennifer Ablan, editor-in-chief of Pensions & Investments.
Previously, Mr. Gundlach predicted a recession would arrive in the fourth quarter of this year, but on Thursday's interview, he said "it's too far out. I think it's within four months at the most. Almost every indicator is flipped into high probability. The only one that hasn't is the unemployment rate," currently at 3.6%. When that rate crosses over its 12-month moving average, "it's a reliable indicator you're on the doorstep" of recession, he said.
The inverted yield curve also signals a recession in the offing, said the Los Angeles-based fixed-income manager, noting the 10-year bond yield was 107 basis points below the 2-year yield a few days ago. "That's very concerning if you're looking for growth," as banks will tighten up their lending, he said.
DoubleLine managed $92.4 billion as of Dec. 31.
Mr. Gundlach also weighed in on the failure of Silicon Valley Bank, which collapsed after depositors rushed to withdraw their money and investors feared that losses in Treasuries and other bonds would sink the bank.
"I don't understand why nobody was paying attention to these portfolios at SVB when they're so easy to value," he said. With a succession of speedy rate hikes, "from peak to trough on long-term bonds, the drawdown was 50%. Why wouldn't a regulator be monitoring the portfolio?"
He called Silicon Valley Bank's failure "a rate policy collision with stupid accounting rules" for banks.
There are likely not many more bank failures to come, he said, and the Federal Reserve in response to the crisis will likely raise rates only 25 basis points at next week's meeting.
"By bailing out depositors at SVB, that's essentially a quantitative easing" by the Fed, he said. "Making those depositors whole is about the same as a month or two of reversing quantitative tightening."
However, "if we do get one more bank failure, then I think they'll stay on hold," and not raise rates, he added.
Mr. Gundlach also said Credit Suisse isn't a harbinger of things to come among other Wall Street banks.
"They've been uniquely bad. I'm surprised they haven't merged with UBS," he said.