S&P U.S. Downgrade Will Hurt Dollar More Than Bonds: Gundlach
By: Jeffrey Gundlach, CEO of the fixed-income investment management firm DoubleLine Capital, told CNBC Monday that Standard & Poors' U.S. downgrade is "just outright silly."
"What happened on Friday, in my opinion, is not really a downgrade of U.S. bonds, it's a downgrade of the U.S. dollar," said Gundlach.
"What they're worried about is that what you're going to get in terms of the payback is going to be worth a lot less," he added. "But that is not their job."
Standard & Poor's is looking at the "risk of print and pay," explained Gundlach. "But what they are supposed to be focusing on is the probability or the wherewithal to pay."
"The payback ability of the United States is absolutely, positively 100 percent—they just run the printing press," he added.
This is just another "sign post" along the way to a weaker economy, Gundlach noted.
Once quantitative easing went away, he explained, the whole thing started falling apart. "That's because the economy needs all the stimulus to create even moderate GDP [gross domestic product] growth. And if you start to address the deficit through the debt ceiling shenanigans, and now through potentially more of a cattle prod to work in that direction, it's going to mean a weaker economy."
"If you are going to address the deficit even incrementally, as I've been saying, low Treasury bond yieldsmake sense," he concluded.
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