According to Jeffrey Gundlach, the CEO of investment management company DoubleLine Capital, there is a possibility of a U.S. recession occurring this year. He believes that the increasing interest rates are putting pressure on both U.S. consumers and companies.

Indicators pointing towards potential economic trouble in the U.S. economy, such as increasing credit card delinquencies and weaker retail sales data, indicate that an economic downturn may be more likely than a resurgence of inflation, according to the speaker.

“There are numerous indicators pointing towards a potential recession,” he remarked during a webinar organized by David Rosenberg, the founder and president of Rosenberg Research. “There seems to be a stronger sense of economic downturn rather than economic growth,” he added.

In a cautious move, the renowned money manager, known for his expertise in the field, revealed his decision to steer clear of the most high-risk segments of the corporate debt market. This includes avoiding bonds from companies with a triple-C rating, as well as private credit investments. His rationale behind this strategy is his anticipation of a significant increase in companies defaulting on their debt.

Regarding private credit, he mentioned that investors who seek higher returns in private markets rather than public debt markets may face the challenge of holding illiquid assets if there is a sudden economic downturn.

“Currently, private credit does not outshine public credit in any aspect.” According to his analysis, the alternative option is more risky and offers less potential reward, making it highly unfavorable.

However, it is worth noting that DoubleLine has a significant investment in U.S. government debt, despite the ongoing concerns about the increasing levels of U.S. debt and the impact of higher interest rates on government interest payments. “We currently hold a higher number of Treasuries in our strategies than we have in the past,” stated Gundlach.

If the debt burden continues to increase, there may come a point where the U.S. government will have to consider restructuring its debt, which would be an unprecedented move.
“I have this interesting notion of exclusively purchasing the lowest coupon Treasuries. This strategy eliminates concerns about potential restructuring,” he explained. “I have concerns about the possibility of the federal government having to restructure the Treasury debt.”