WHEN: Today, Wednesday, December 16th
WHERE: CNBC's "Fast Money"
Following the Federal Reserve's decision to raise interest rates, DoubleLine Capital Founder & CEO Jeffrey Gundlach spoke with CNBC's Melissa Lee on "Fast Money" (M-F, 5PM-6PM ET) today, Wednesday, December 16th. Following are links to the interview on CNBC.com: http://video.cnbc.com/gallery/?video=3000466931, http://video.cnbc.com/gallery/?video=3000466930 and http://video.cnbc.com/gallery/?video=3000466929.
All references must be sourced to CNBC.
MELISSA LEE: EARLIER ON THE HALFTIME REPORT, ONE OF THE MOST WATCHED INVESTORS OF OUR TIME JEFFREY GUNDLACH OF DOUBLELINE CAPIITAL WARNED THAT THE FED SHOULD NOT BE RAISING RATES. HE JOINS US ON THE "FAST" LINE WITH HIS REACTION TO THE NEWS. JEFFREY WELCOME TO THE SHOW. THE MARKETS RIPPED HIGHER PRETTY MUCH ACROSS THE BOARD. YOU NAME THE SECTOR, IT PROBABLY WENT HIGHER. WERE YOU SURPRISED BY THIS REACTION?
JEFFREY GUNDLACH: NOT REALLY. THIS IS JUST A HUGE BUY THE RUMOR SELL THE NEWS TYPE OF A MARKET DAY AND THIS IS A LONG TIME IN THE MAKING. THE FED HAS BEEN PROMISING BASICALLY TO RAISE RATES IN 2015. EVER SINCE SEPTEMBER 21st WHEN THEY REALIZED THAT NOT RAISING RATES IN SEPTEMBER DAMAGED THEIR CREDIBILITY, THEY'VE BEEN WORKING FOR THREE MONTHS TO REBUILD THE CREDIBILITY. I THINK THAT WAS UNDERLINED BY JANET YELLEN'S OPENING STATEMENT WHERE SHE SAID THE ERA OF EXTRAORDINARY ACCOMMODATION HAS ENDED. WHICH OF COURSE IS NOT TRUE AT ALL. A FEW YEARS BACK WHEN I WAS RELATIVELY NEW IN THE BUSINESS WE THOUGHT 3% FED FUNDS WAS AN INCREDIBLY LOW RATE AND MOVING IT FROM ZERO TO 25, AND THE 25 TO 50 IS STILL EXTRAORDINARY ACCOMMODATION. SO I'M REMINDED OF GEORGE W. BUSH ON THE AIRCRAFT CARRIER WITH MISSION ACCOMPLISHED, I THINK JANET MAY HAVE JUMPED THE GUN ON MISSION ACCOMPLISHED. ONE THING I LIKE TO ADVISE PEOPLE ABOUT IS YOU DIDN'T GET ANYTHING RESEMBLING THE ONE AND DONE TYPE OF LANGUAGE AS PEOPLE WERE FORECASTING. AND I THINK WE'RE NOW GOING TO BE TALKING MORE ABOUT THE FED IN THE WEEKS AHEAD THAN LESS ABOUT THE FED. THIS IS NOT SOME SORT OF END POINT IN THE JOURNEY. IF WE GET STRONG ECONOMIC DATA, PEOPLE WILL START SAYING THE NEXT HIKE IS COMING VERY QUICKLY AND THEY ARE BEHIND THE CURVE AND IF THE DATA GETS SOFT PEOPLE WILL BE TALKING ABOUT THE -- JUMPING THE GUN AND IT WAS A MISTAKE. SO THE DOLLAR, I THINK, IS NOT GOING TO RALLY. I KNOW THERE IS TALK ABOUT THAT ALREADY ON THE SHOW HERE. I THINK THE DXY HAS TO PROVE ITSELF. YOU NEED TWO CLOSES I THINK ABOVE 100.33 WHICH WAS THE MARKET HIGH. AND FRANKLY ALL THIS SEEMS TO BE PRICED IN. ALSO WHEN I SAY BUY THE RUMOR SELL THE NEWS. I THINK JUNK BONDS, ONE OF THE REASONS THEY ARE SELLING OFF SO MUCH SINCE SEPTEMBER 21st HAS BEEN THIS CREDIBILITY BUILDING CASE BY THE FED IN THE JUNK BOND MARKET HAS BEEN DROPPING, DROPPING, PARTIALLY IN FEAR, PART OF IT COMMODITIES PRICES BUT PARTIALLY IN FEAR OF THE FED RAISING RATES. SO NOT SURPRISINGLY THE JUNK BOND MARKET WENT UP A POINT TODAY BECAUSE OF A RELIEF RALLY. AND SO I THINK WHAT WILL HAPPEN IS MUCH MORE TALK ABOUT THE FED THAN ACTUALLY PEOPLE EXPECT. AND THERE IS A GREAT CONTRADICTION RIGHT NOW BETWEEN THE DOTS AND THE PRICING OF THE TWO-YEAR TREASURY. AT 1%. THE FED FUNDS ARE GOING TO BE AT 1.4% IN A YEAR. SO THE TWO YEAR TREASURY YIELD IS ALREADY BROKEN OUT TO THE UPSIDE ITS GOING HIGHER. ONE THING TRADERS SHOULD WATCH FOR IS THE FIVE-YEAR TREASURY WHICH HAS HUMUNGOUS YIELD RESISTANCE AT 181 OR SO IT HAS HIT THAT LEVEL MANY TIMES AND BOUNCED OFF OR NEAR THAT LEVEL MANY TIMES AND BOUNCED OFF IT. TODAY WE GOT TO 178. IF THE FIVE YEAR TREASURY BREAKS THROUGH ABOVE 181, IT IS GOING TO GO UP A LOT. IT MIGHT GO UP TO 240.
LEE: JEFF, I'VE GOT TO ASK YOU ABOUT YOUR OPINION OF THE ECONOMY RIGHT NOW BECAUSE PART OF YOUR PREMISE OF WHY THE FED SHOULD NOT HAVE RAISED RATES WAS THAT FINANCIAL CONDITIONS WERE ACTUALLY WORSE FROM THE SEPTEMBER MEETING. AND YOU CITED VARIOUS THINGS – EMERGING MARKET DEBTS, EQUITY, THE JUNK BOND MARKET, ETC. ETC. NOW WITH THIS FED RATE HIKE AND THE UNCERTAINTY OF LOOMING HIKES, WHAT IS YOUR VIEW? HOW BAD COULD IT ACTUALLY GET? COULD WE SEE THE R-WORD, RECESSION?
GUNDLACH: I WOULD GIVE IT ABOUT A ONE-THIRD CHANCE FOR 2016. I MEAN, THE THINGS THAT ARE NOT LOOKING GOOD IS – AND I TALK ABOUT THIS A LOT – NOMINAL GDP IS NOT IMPROVING YEAR-OVER-YEAR. IT'S AT QUITE A LOW LEVEL ON NOMINAL GDP. AND OF COURSE, COMMODITIES PRICES, THEY HIT AGAIN A NEW LOW TODAY. THE CRB AGAIN HIT A NEW LOW. AND IF THE ECONOMY IS SO GOOD, GLOBALLY IN PARTICULAR, YOU HAVE TO ASK YOURSELF, WHAT IS THE CRB INDEX DOING DROPPING 14% FROM SEPTEMBER 17th, DROPPING 20 – WHO KNOWS. IT IS SO BIG, I CAN'T EVEN QUOTE IT. BUT ALMOST CUT IN HALF SINCE JUNE OF 2014. CLEARLY LOWER COMMODITIES PRICES. AND THE DOLLAR ISN'T EVEN RALLYING BY THE WAY. THE DOLLAR IS THE SAME LEVELS. IT IS LOWER THAN IT WAS IN MARCH. AND COMMODITIES PRICES ARE MUCH LOWER. SO YOU CAN'T BLAME THE RECENT COMMODITY WEAKNESS ON DOLLAR STRENGTH EXACTLY. SO, IF COMMODITY PRICES CAN'T FIND FOOTING, I THINK IT'S GOING TO BE WEAKER RATHER THAN STRONGER. I HEARD JIM GRANT SAY DWINDLING ECONOMIC GROWTH. I THOUGHT THAT WAS A GOOD PHASE.
LEE: SO HOW, IF AT ALL, HAS THIS CHANGED YOUR OUTLOOK FOR 2016? I MEAN, WHAT WERE YOU POSITIONING YOURSELF TODAY OR THINKING ABOUT BUYING OR SELLING GOING INTO THE NEW YEAR?
GUNDLACH: YOU KNOW, I HAVEN'T EVEN MADE UP MY MIND YET ON 2016. I WANT TO SEE HOW THE MARKET ACTS IN REALLY THROUGH THE END OF NEXT WEEK, DIGESTING THIS FED MOVE. SO I'M ACTUALLY LOOKING FOR SHORT-TERM INTEREST RATES TO RISE FURTHER. AS I SAID, THE TWO-YEAR TREASURY YIELD IS UNEQUIVOCABLY TRENDING HIGHER. THE FIVE-YEAR IS PROBABLY GOING TO JOIN IT. AND 2016, WHAT I AM SOMEWHAT COMMITTED TO, IS WE'RE GOING TO SEE A FLATTER YIELD CURVE IN 2016. ONE THING TO THINK ABOUT, TOO, ABOUT THE PACE OF TIGHTENING IS THAT USUALLY WHEN THE FED STARTS TIGHTENING, THE CURVE IS MUCH STEEPER THAN IT IS TODAY. I MEAN, THE SPREAD BETWEEN THE TWO-YEAR AND THE LONG TEN-YEAR IS ONLY 130 BASIS POINTS. SO IF THE TENURE WERE TO STAY WHERE IT IS AND THE FED WOULD RAISE RATES WHERE THEY ARE TALKING ABOUT, WE HAVE AN INVERTED YIELD CURVE IN 2016. I'M NOT SURE THAT IS GOING TO HAPPEN BECAUSE I DON'T THINK THE FED'S GOING TO BE ABLE TO FOLLOW THROUGH ON THEIR DOT PROJECTION. BUT I DO THINK THE CURVE IS GOING FLATTER ALMOST FOR SURE.
LEE: OK. JEFFREY, WE ARE GOING TO LEAVE IT THERE. THANK YOU SO MUCH FOR PHONING IN. WE APPRECIATE IT.
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