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CNBC Exclusive: CNBC Transcript: DoubleLine Capital CEO Jeffrey Gundlach Speaks with CNBC’s Scott Wapner Today

WHEN: Today, Wednesday, April 4, 2018

WHERE: CNBC's "Fast Money Halftime Report"

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with DoubleLine Capital CEO Jeffrey Gundlach and CNBC's Scott Wapner on CNBC's "Fast Money Halftime Report" (M-F 12PM-1PM) today, Wednesday, April 4th. Following are links to video from the interview on CNBC.com: https://www.cnbc.com/video/2018/04/04/jeff-gundlachs-bond-call.html?play=1, https://www.cnbc.com/video/2018/04/04/jeff-gundlach-bitcoin-is-the-poster-child-of-the-social-move.html?play=1, & https://www.cnbc.com/video/2018/04/04/jeff-gundlach-2018-is-payback-time.html?play=1.

All references must be sourced to CNBC.

SCOTT WAPNER: LET'S BRING IN THE CHIEF EXECUTIVE OFFICER OF DOUBLELINE CAPITAL. NOW, JEFFREY GUNDLACH, JOINING US LIVE AND EXCLUSIVELY FROM LOS ANGELES. JEFFREY, WELCOME BACK. NICE TO SEE YOU AGAIN.

JEFFREY GUNDLACH: IT'S GOOD TO BE HERE, JUDGE.

WAPNER: ALRIGHT. SO YOU CALLED IN IN FEBRUARY, LATE FEBRUARY, WHEN THE TEN-YEAR WAS AT 2.87%. SAID THE LEVEL QUOTE, "MAKES A PRETTY GOOD DEAL OF SENSE RIGHT NOW." WHAT DO YOU MAKE OF WHERE THEY ARE TODAY AND WHY DO THEY KEEP FALLING?

GUNDLACH: YEAH. WELL, THEY'RE REALLY RANGE BOUND I THINK IS THE WAY TO CHARACTERIZE IT. I MEAN, ONCE THE STOCK MARKETS START GETTING WOBBLY IN FEBRUARY, BOND YIELDS KIND OF STOPPED RISING. AND THEY'RE CONTAINED NOW BETWEEN 295 ON THE TEN-YEAR, WHICH WAS THE HIGH CLOSE, AND DOWN AT 273, AND NOW WE'RE AT 278, WHICH IS KIND OF IN THE MIDDLE. BUT THEY DO MAKE SENSE HERE. ONE OF THE MOST UNCANNY RELATIONSHIPS THAT MOST PEOPLE AREN'T EVEN AWARE OF IS THAT THE YIELD ON THE TEN-YEAR HAS BEEN TRACKING THE AVERAGE OF THE GERMAN TEN-YEAR AND U.S. NOMINAL -- U.S. NOMINAL GDP ALMOST EXACTLY FOR THE LAST FEW YEARS. IN FACT, IT EVEN GOES BACK 30 YEARS THAT THEY'RE PRETTY CLOSE, SO IT'S AN INDICATOR THAT PEOPLE SHOULD GET ON THE RADAR SCREEN. SO IF YOU LOOK AT THE GERMAN TEN YEAR, IT SEEMS TO BE PEGGED AT ABOUT 50 BASIS POINTS NOW. IT DID BREAK ABOVE THAT AND GOT TO 78 BASIS POINTS, BUT IT SEEMS LIKE THEY'RE BACK IN, MANIPULATING IT, SO IT SEEMS TO HAVE FOUND A HOME AT 50. AND U.S. NOMINAL GDP IS AT 4.4, BUT IT'S PROBABLY GOING TO GO HIGHER. GDP ON A REAL BASIS FROM THE ATLANTA FED IS AT 2.8, AND SO YOU THROW A COUPLE OF POINTS OF INFLATION ON THAT ON THAT AND YOU'RE AT 4.8. AND YOU AVERAGE 4.8 AND 50 BASIS POINTS, THAT'S 5.3, DIVIDED BY 2, GETS YOU AROUND 2.7. AND SO TODAY WE'RE AT 2.78 SO THAT SEEMS ABOUT RIGHT. SO THERE'S BASICALLY TWO WAYS FOR THE TEN-YEAR TO BREAK OUT OF THIS RANGE. ONE IS THE GERMAN TEN-YEAR COULD PUSH TO THE UPSIDE, IT SEEMS UNLIKELY IT'S GOING TO PUSH TO THE DOWNSIDE GIVEN THAT THERE'S A NEGATIVE REAL RATE THERE. SO THERE'S POTENTIAL UPWARD PRESSURE ON THE TEN-YEAR. AND THEN U.S. NOMINAL GDP COULD FLUCTUATE. WE'RE NOT REALLY SURE WHAT THAT'S GOING TO BE IN THE QUARTERS AHEAD. BUT THE YIELD IS SENSIBLE WHERE IT IS RIGHT NOW AT 2.78%. SO – GO AHEAD.

WAPNER: SO YOU'RE NOT WORRIED, AND MAYBE WORRIED IS THE WRONG WORD, MAYBE SOME PEOPLE MAY BE CONCERNEDED THAT WHERE BOND YIELDS ARE NOW, IT'S A REFLECTION MAYBE THE ECONOMY ISNT AS GOOD AS PEOPLE THINK. PETER NAVARRO TOLD OUR KELLY EVANS THE OTHER DAY THAT THE ECONOMY WAS, IN HIS WORDS, "AS STRONG AS AN OX." IS HE RIGHT?

GUNDLACH: THAT SEEMS LIKE SOMETHING OF AN OVERSTATEMENT. YOU MIGHT HAVE MADE A COMMENT LIKE THAT BACK IN JANUARY, WHEN THERE WAS A MOMENT ACTUALLY THAT THE ATLANTA FED'S GDP NOW IS AT 5.4%, REAL GDP, WHICH IS KIND OF SHOCKINGLY HIGH. IT'S BEEN REVISED DOWN BY 50%. BUT RECENT ECONOMIC DATA HAS NOT BEEN AS STRONG AS IT WAS THREE MONTHS AGO. IN PARTICULAR, RETAIL SALES, WHICH ARE SOMEWHAT CONCERNING. AND THE REASON GDP HAS BEEN MARKED UP FROM THE ATLANTA FED IN THE LAST WEEK OR TWO IS BASICALLY INVENTORY BUILDING, WHICH IS FINE FOR BOOSTING FIRST QUARTER GDP, BUT INVENTORY BUILDING CAN BE VIEWED AS BORROWING FROM THE FUTURE. SO TO SAY IT'S AS STRONG AS AN OX IS SOMETHING OF A HYPERBOLE. I MEAN THE ECONOMY IS NOT VERY DIFFERENT THAN WHERE IT'S BEEN IN RECENT YEARS. WE'VE BEEN RUNNING AT AROUND 2% REAL GDP FOR SEVERAL YEARS AND MAYBE WE'RE A LITTLE BIT HIGHER THAN THAT NOW. BUT TO SAY "STRONG AS AN OX," THAT'S LIKE SAYING THE S&P 500 IS STRONG AS AN OX. IT FELT THAT WAY IN JANUARY. BUT NOW IT'S NEGATIVE YEAR-TO-DATE SO IT'S HARD TO SAY THESE INDICATORS ARE STRONG AS AN OX.

WAPNER: MR. NAVARRO ALSO SEEMED TO OPENLY QUESTION WHETHER THE FED SHOULD RAISE RATES THREE TIMES THIS YEAR GIVEN THE ABSENCE, AS HE READ IT, OF ANY INFLATIONARY PRESSURES. WHAT DO YOU MAKE OF THAT?

GUNDLACH: WELL, THERE HAS BEEN KIND OF AN AWOL INFLATION UPTICK. THERE HAS BEEN ONE BREWING A LITTLE BIT, BUT IT IS HARD TO SAY THAT INFLATION IS RISING. THERE'S A LOT OF REASONS FROM AN ECONOMIC FUNDAMENTAL PERSPECTIVE TO THINK INFLATION SHOULD BE GOING UP A LITTLE BIT. WE HAVE A MODEL HERE AT DOUBLELINE THAT HAS BEEN PRETTY ACCURATE. AND OUR MODEL SHOWS THE CPI WILL GO UP TO 2.6% YEAR-OVER-YEAR COME JULY, BUT THEN MODERATE. SO INFLATION ISN'T REALLY THERE. AND YES, THERE HAS BEEN MANY, MANY FALSE ALARMS ON THE INFLATION RATE GOING UP AND PARTICULARLY, WAGE INFLATION. AND REMEMBER JUDGE, A COUPLE MONTHS AGO WE GOT THAT 2.9 YEAR-OVER-YEAR AVERAGE HOURLY EARNINGS NUMBER. IT WILL BE VERY INTERESTING TO SEE WHAT HAPPENS ON FRIDAY.

WAPNER: YEAH.

GUNDLACH: BECAUSE ALL EYES WILL BE ON THAT WAGE NUMBER AND NOBODY REALLY KNOWS WHERE IT'S GONNA COME OUT.

WAPNER: I WAS GOING TO ASK YOU -- I WAS GOING TO ASK YOU THE IMPORTANCE OF FRIDAY'S REPORT. SOUNDS LIKE YOU THINK IT'S REALLY IMPORTANT.

GUNDLACH: I THINK IT IS REALLY IMPORTANT. YOU KNOW, A LOT OF THINGS HAVE BEEN IN CONSOLIDATION MODE IN THE LAST SEVERAL WEEKS. I MEAN, THE BOND MARKET, AS I SAID, THE TEN-YEAR HAS BEEN RANGE-BOUND, THE DOLLAR AFTER SLIDING AGAINST ALL CONSENSUS THINKING FOR 15 MONTHS HAS BEEN STABILIZING, BUT NOT RALLYING. RIGHT? I MEAN, IT FELL BY 15 POINTS ON THE DIXIE FROM 103 DOWN TO 88. AND WE'VE RALLIED ALL THE WAY UP TO 90, WHICH ISN'T MUCH OF A RALLY. IT'S A LITTLE BIT DISCONCERTING WHEN BIG, OVERSOLD MOVES DO NOT GET CORRECTED IN ANY KIND OF IMPULSIVE WAY, BUT RATHER GET CONSOLIDATED SIDEWAYS. AND YOU CAN SAY THAT'S BEEN HAPPENING IN A LOT OF MARKETS. I JUST MENTIONED A DOLLAR, WHICH AFTER A BIG DROP HAS ONLY BEEN GOING SIDEWAYS. BOND YIELDS ON THE TEN-YEAR AFTER A BIG RISE, I MEAN 132, AS WE ALL KNOW, WAS THE LOW NEARLY TWO YEARS AGO IN JULY OF 2016. WE MORE THAN DOUBLED UP TO 295, BUT HAVEN'T REALLY HAD MUCH OF A RALLY OFF OF THAT OVERSOLD LEVEL ON THE TEN-YEAR AT 295. AND ALSO THE PRICE OF GOLD HAS BEEN KIND OF OFF THE RADAR SCREEN. IT'S INTEREST HOW GOLD CAN'T SEEM TO GET ANY MOMENTUM ABOVE 1,350 YET DOESN'T DROP. SO THAT'S BEEN CONSOLIDATING SIDEWAYS. ALL THREE OF THESE MARKETS: GOLD, THE DOLLAR AND THE TEN-YEAR ARE INTERTWINED AND THEY ALL CONSOLIDATING SIDEWAYS AFTER BIG MOVES. SO IT WILL BE INTERESTING TO SEE WHICH WAY THEY BREAK. THE OTHER THING THAT IS REALLY THE TELLTALE OF THE MARKET, WHICH WAS MUST IN THE NEWS, I REMEMBER WE DID AN HOUR SHOW, JUDGE, WE WERE TALKING ABOUT --

WAPNER: I KNOW WHERE YOU'RE GOING WITH THIS.

GUNDLACH: BACK ON DECEMBER 13th– YOU KNOW I'M GOING TO BITCOIN.

WAPNER: YOU CALLED IT RIGHT. YOU SAID. YOU SAID IT BEFORE. NOW BITCOIN HAS GOTTEN DESTROYED AND LOW AND BEHOLD, YOU KNOW, STOCKS HAVE BEEN PUKING UP IN THEIR OWN RIGHT.

GUNDLACH: WHAT INVESTORS NEED TO UNDERSTAND IS THAT THERE IS A CONNECTION BETWEEN BITCOIN AND THE BASIC SOCIAL MOVE OF WHAT WAS SPECULATION IS NOW A LITTLE BIT MORE, YOU KNOW, CAUTIOUS. BITCOIN PEAKED ABOUT WEEK AFTER I SAID, "SHORT IT," ON YOUR SHOW DECEMBER 13th. AND IT WAS AT 17,250 AND IT WENT TO 20,000. OF COURSE TODAY, IT'S ON THE LOW OF THE YEAR. IT'S DOWN BELOW 7,000. WELL, WHAT'S INTERESTING IS BITCOIN VERY CLEARLY LEADS RISK ASSETS, AND LET'S JUST TALK ABOUT THE S&P 50. BITCOIN STARTED TANKING THE MIDDLE OF DECEMBER AND THE S&P 500 STARTED TANKING AFTER JANUARY 26th. AND THEN, INTERESTINGLY, WHEN THE STOCK MARKET DROPPED 12% IN A VERY SHORT PERIOD OF TIME, ACTUALLY ABOUT FOUR OR FIVE DAYS BEFORE THE S&P 500 BOTTOMED IN FEBRUARY, BITCOIN STARTED TO RALLY, AND IT WAS RALLYING SHARPLY, SO IT LED THE STOCK MARKET. THEN BITCOIN ACTUALLY STARTED TANKING FROM 12,000 A FEW DAYS BEFORE THE S&P 500 AND OTHER STOCK INDICES STARTED TO TAKE GAS BACK A FEW WEEKS AGO. AND INTERESTINGLY, BITCOIN THEN STARTED -- ACTUALLY ON MONDAY, WHEN THERE WAS A DRUBING FOR THE STOCK MARKET, BITCOIN WAS ACTUALLY RALLYING. IT WAS UP ON MONDAY AND THEN IT RALLIED SHARPLY MONDAY NIGHT INTO TUESDAY MORNING AND SINCE THEN, WE'VE HAD A STABILIZING, YOU KNOW, PRETTY DECENT UPDAY IN THE STOCK MARKET. SO WHAT'S FASCINATING IS HOW PEOPLE DON'T UNDERSTAND THAT BITCOIN IS THE POSTER CHILD OF THE SOCIAL MODE AND SPECULATIVE KIND OF ANIMAL SPIRITS. AND SO IT'S INTERESTING TO WATCH IT. UNFORTUNATELY, BITCOIN IS NOW ON THE LOW OF THE YEAR. IT'S DOWN VERY SIGNIFICANTLY TODAY. SO IT KIND OF SHOWS THAT THE VOLATILITY IN THE STOCK MARKET THAT I'VE BEEN TALKING ABOUT. I MEAN TWEETED OUT BACK WHEN THE NASDAQ HIT ITS ALL TIME HIGH, THATDKAY, AND IT SEEMED LIKE MAYBE THE COAST WAS CLEAR AND A LOT OF PEOPLE WERE TALKING ABOUT THIS BAD DREAM WAS OVER ABOUT VOLATILITY. YOU'LL NOTICE, VOLATILITY IS NOT GONE AT ALL. IN FACT, WE'RE IN A NEW REGIME OF VOLATILITY. I REMEMBER, BACK IN THE SUMMER OF LAST YEAR VIX BEING BELOW TEN, IT WAS NOT SOMETHING THAT WOULD BE SUSTAINABLE AND MY HIGHEST CONVICTION IDEA WAS THAT VOLATILITY WILL RETURN. AND I RECALL PEOPLE SAYING THE VIX WOULD NEVER GO ABOVE 15 AGAIN. PRETTY INTERESTING. IN THE INVESTMENT BUSINESS, WHEN YOU HEAR THE WORD NEVER, WE ALL KNOW IT MEANS IT IS ABOUT TO HAPPEN. IT MEAN IT'S IMMINENT.

WAPNER: RUN FOR THE HILLS AT THAT MOMENT.

GUNDLACH: YEAH, THE VIX CAN'T SEEM TO SETTLE DOWN, SO WE'RE IN A VOLATILITY REGIME. THIS IS COMPLETELY OBVIOUSLY DIFFERENT FROM WHAT WE EXPERIENCED IN 2017. IT'S PAYBACK TIME. 2017 WAS THE EASIEST INVESTMENT YEAR OF ALL TIME. THE RISK ADJUSTMENT RETURNS OF THE STOCK MARKET WERE THE BEST IN HISTORY AND OF COURSE THIS YEAR AS I'VE SAID BEFORE, WE'RE GOING TO HAVE A NEGATIVE YEAR IN THE STOCK MARKET, IN FACT RIGHT NOW WE HAVE A NEGATIVE YEAR IN JUST ABOUT EVERYTHING EXCEPT COMMODITIES. IT'S THE ONLY THING THAT'S UP.

WAPNER: SO YOU STILL BELIEVE WE'LL HAVE A NEGATIVE YEAR IN THE STOCK MARKET BECAUSE YOU, AS I RECALL, YOU'VE BEEN FAIRLY CONSTRUCTIVE ON RISK ASSETS AS LONG AS BOND YIELD DIDN'T GET AWAY FROM US. NOW, I DON'T KNOW IF IT IS THE GEOPOLITICAL EVENTS THAT ARE IN FRONT OF US THAT MAKE YOU THINK THAT, BUT WHY NOW ARE YOU THINKING IT'S GOING TO BE A NEGATIVE YEAR FOR STOCKS?

GUNDLACH: WELL, I SAID THAT BACK IN JANUARY. THE THING IS THAT – WHEN THE STOCK MARKET WAS NEAR THE HIGH OF THE YEAR. BUT THE THING IS THAT THE STOCK MARKET CAN'T TAKE HIGHER BOND YIELDS. AND THE LINE IN THE SAND THAT WE TALKED ABOUT IN THE PAST WAS 263 ON THE TEN-YEAR. AND I SAID IF THAT WE BREAK ABOVE 263, IT'S GONNA BE TROUBLE FOR STOCKS. AND BOY IS THAT RIGHT. THE SECOND WE WENT ABOVE 263 IS WHEN STOCKS STARTED TO GET WOBBLY AND THEN WE ROCKETED HIGHER ON THE TEN-YEAR AS WE THOUGHT IT WOULD TOWARD 3% ONCE WE BROKE ABOVE 263. WE DIDN'T QUITE MAKE IT TO 3, WE MADE IT TO 2.95, BUT CALL ME A LIAR FOR FIVE BASIS POINTS IF YOU WANT TO. BUT THE 263 LEVEL WAS REALLY PROBLEMATIC. AND I THINK FOR STOCKS TO REALLY HAVE A CHANCE OF REGAINING THEIR FOOTING, YOU NEED THE TEN-YEAR TO GO BELOW 263. AND I REALLY DON'T THINK THAT WILL HAPPEN BECAUSE WE'RE LOOKING AT A LOT OF LEADING INFLATION INDICATORS, AND NONE OF THEM ARE SCARY EXACTLY, BUT THEY ALL SHOW THAT ONE SHOULD EXPECT THAT WE'LL SEE HIGHER INFLATION FROM THE CPI IN THE MONTHS AHEAD. WE HAVE ABOUT FIVE, SIX INDICATORS THAT GIVE US A LEADING INDICATOR ON THE CORE CPI. ONE OF THEM IS REAL GDP. AND REAL GDP LEADS CPI WITH THE CORRELATION OF .79 WHICH IS VERY HIGH AND IT LEADS IT BY ABOUT 18 MONTHS. AND REAL GDP STARTED TO GO UP 18 MONTHS AGO. SO WE SHOULD EXPECT CPI TO BE MOVING HIGHER. ANOTHER GAGE IS THE NEW YORK FED'S UNDERLYING INFLATION GAGE, THE UIG. THAT ALSO HAS A CORRELATION OF A LEAD OF ABOUT 16 MONTHS OF .8 WHICH IS AGAIN VERY HIGH. THAT STARTED RISING ABOUT 16 MONTHS AGO. YOU COULD LOOK AT PMI THAT HAVE LEADING ASPECT TO THEM. THEY SUGGEST INFLATION SHOULD RISE. NOT BY A HUGE AMOUNT AND MAYBE ONLY TEMPORARILY. WHO KNOWS. BUT IT SHOWS INFLATION SHOULD GO UP. WHICH MEANS WITH CPI LIKELY TO PRINT ON THE DOUBLE LINEMODEL AT 2.6 FOR THE JULY MONTH YEAR-OVER-YEAR NUMBER, IT'S REALLY HARD TO SEE WHY THE TEN-YEAR YIELD SHOULD DROP BELOW 263 AND THAT'S REALLY PROBLEMATIC. NOW STOCKS ARE IN AN INTERESTING POINT BECAUSE THERE IS SOMETHING OLD SCHOOL THAT'S CALLED THE DOW THEORY.

WAPNER: I WAS GOING TO ASK YOU ABOUT THAT.

GUNDLACH: YEAH, THE DOW THEORY, IT'S BY CHARLES DOW, THE DOW INDUSTRIAL AVERAGE, AND BASICALLY THE THEORY IS THAT THE TRANSPORTS -- WHICH USED TO BE CALLED THE RAILS BACK IN THE DAY OF THE RAILROADS— THE RAILROADS, THE TRANSPORTS AND THE DOW JONES INDUSTRIALS, IF THEY GET IN SYNC ON THE UPSIDE OR THE DOWNSIDE, THE DOW THEORY SAY IT'S IMPORTANT. SO THERE HAS BEEN A DOW THEORY BY SIGNAL FOR A LONG, LONG TIME. THERE HASN'T BEEN A BEARISH INDICATOR FROM THE DOW THEORY IN FOREVER. WHAT YOU NEED IS FOR BOTH THE DOW JONES INDUSTRIALS AND THE TRANSPORTS TO TOGETHER TAKE OUT THE RECENT LOW. AND THAT ALMOST HAPPENED ON MONDAY. IT WAS GOING TO HAPPEN BUT THE LATE RALLY ON MONDAY STOPPED IT. AND THE TRANSPORTS DID NOT TAKE OUT THEIR LOW. WHERE AS THE DOW JONES INDUSTRIALS LONG AGO TOOK OUT ITS LOW. SO IT IS INTERESTING THAT AT 10136.61, TO BE PRECISE ABOUT IT, THAT'S THE LEVEL ON THE TRANSPORTS. IF THEY CLOSE BELOW THAT AND THE INDUSTRIALS CLOSE BELOW THEIR LOW OF FEBRUARY, THEN YOU HAVE A DOW THEORY BEAR SIGNAL. MY SUSPICION IS THAT WILL NOT HAPPEN UNLESS THE TEN-YEAR TREASURE RETREATS AND THE YIELD GOES ABOVE 3%. WHICH IS REALLY THE ISSUE OF THE DAY: IS THE TEN-YEAR GOING TO BREAK OUT OF THIS RANGE BELOW 263 OR IS IT GOING TO GO ABOVE 3%. I DON'T REALLY HAVE A LOT OF CONVICTION ON THIS. I THINK -- THE ODDS FAVOR A BREAK TO THE UPSIDE BUT I REALLY -- IF FIVE IS NEUTRAL ON A SCALE OF ONE TO TEN, WITH MY CONVICTION, I'M LIKE A SIX. I'M BARELY THERE.

WAPNER: WELL THAT'S WHY –

GUNDLACH: I'M GONNA LET THE MARKET DO THE TALKING. I MEAN, 322 ON THE 30-YEAR IS THE LEVEL – YOU KNOW, UNDERLINE AND BOLD FACED IN ITALICS, IT'S THE LEVEL. AND AMAZINGLY, AND I'VE BEEN TALKING ABOUT THIS FOR MONTHS, AND AMAZINGLY CLOSED EXACTLY AT 322 ON THE 30-YEAR AND THAT STARTED THE MODERATE BOND RALLY WE'VE HAD SINCE THEN. SO IT WILL BE INTERESTING TO SEE IF WE TAKE THAT OUT.

WAPNER: EVEN MORE REASON WHY FRIDAY'S REPORT WAGES AND JOBS AND EVERYTHING IS SO CRITICAL. WHAT DO YOU MAKE OF THE TRADE STUFF THAT'S GOING ON IN D.C., WHAT HAPPENED TODAY AND IN THE PAST COUPLE OF WEEKS? WHAT IS YOUR TAKE ON IT?

GUNDLACH: WELL, IT'S NOT A POSITIVE. IT'S REALLY INTERESTING, WHEN I WAS IN ELEMENTARY SCHOOL AND HIGH SCHOOL WE TALKED ABOUT THE GREAT DEPRESSION AND WHAT THEY SAID -- MY TEACHERS TOLD ME, WAS THAT THE GREAT DEPRESSION WAS CAUSED BY THE FEDERAL RESERVE RAISING INTEREST RATES PREMATURELY IN A WEAK – IN A NOT SO STRONG ECONOMY AND ALSO THE SMOOT HAWLEY TARIFF ACT THAT ENDED UP CAUSING A BIG, YOU KNOW, POLICY MISTAKE. AND IT WAS INTERESTING BECAUSE WHAT THE TEACHERS TOLD ME IN ELEMENTARY SCHOOL WAS OBVIOUSLY WE'VE LEARNED FROM THESE LESSONS OF THE 1930s AND WE'RE NEVER GOING TO DO THAT AGAIN. AGAIN, HERE'S THE WORD "NEVER." SO HERE WE ARE AND WE ARE RAISING INTEREST RATES, LATE IN THE CYCLE, WE HAVE A YIELD CURVE THAT IS NOW INSIDE OF 50 BASIS POINTS TWOS TO TENS WHICH HISTORICALLY WHEN YOU GO THROUGH 50 TWOS TENS YOU PRETTY MUCH ALWAYS END UP GOING FLATTER INVERTED, WHICH TYPICALLY LEADS TO . SO WE'VE GOT THAT GOING ON. LADDLE ON TOP OF THAT QUANTITATIVE TIGHTENING, WHICH IN FISCAL 2019, WHICH STARTS IN OCTOBER, COULD BE AS MUCH AS $600 BILLION OF QUANTITATIVE TIGHTENING. AND ON TOP OF THAT WE'RE NOW TALKING ABOUT TARIFFS. SO ONE CAN PUT TOGETHER A SCENARIO THAT WE'RE MAKING – STUMBLING THROUGH INTO A POLICY MISTAKE AND THAT IS PERHAPS WHAT MR. NAVARRO WAS TALKING ABOUT, THAT MAYBE THE FEDS SHOULDN'T RAISE INTEREST RATES THREE TIMES THIS YEAR. HOWEVER, I WILL POINT OUT THE BOND MARKET IS COPASETIC WITH THE IDEA OF THE FED RAISING RATES THREE TIMES THIS YEAR. IF YOU LOOK AT THE SHAPE OF THE FRONT OF THE YIELD CURVE IT IS BASICICALLY SAYING, "YES, BOND INVESTORS, THINK IT'S OKAY TO RAISE THE BOND RATES THREE TIMES," AND IN FACT THEY'RE EVEN OKAY WITH THEM GOING TO ABOUT 2.25 ON THE FED FUNDS RATE FOR THE END OF 2019. SO IT'S INTERESTING HOW THE BOND MARKET SEEMS OKAY WITH THIS EVEN THOUGH WE HAVE SOME INDICATIONS ON A HISTORICAL PRECEDENT BACK TO THE 1930s THAT SUGGESTS THAT, YOU KNOW, A TRADE WAR WITH THE FED TIGHTENING, A QUANTITATIVE TIGHTENING, MAYBE A RECESSION WILL COME DURING THE TRUMP ADMINISTRATION, WHICH OF COURSE, WOULD BE HISTORICALLY LIKELY GIVEN THE FACT THIS IS THE SECOND LONGEST ECONOMIC EXPANSION IN THE POST-WAR ERA. SO IF WE DO GET A RECESSION, ONE HAS TO THINK ABOUT HOW RADICALLY THE WORLD WILL APPEAR TO BE TO PEOPLE SINCE WE'RE ALREADY TALKING ABOUT A 1.1 TO $1.3 TRILLION DEFICIT THANKS TO THE TAX BILL AND FURTHER SPENDING INCREASES FOR 2019. AND WE HAVE $600 BILLION POTENTIALLY OF QUANTITATIVE TIGHTENING, WHICH COULD MEAN WE HAVE SOMETHING IN THE ORDER OF $2 TRILLION OF TREASURY BONDS BEING FLOATED IN FISCAL 2019 POTENTIALLY, WITH CORPORATE BOND MATURE STARTING TO RAMP UP AND ALL OF THIS GOING ON, RIGHT? SO, WHAT IF THERE'S A RECESSION ON TOP OF THAT? WHAT IF WE ACTUALLY LOWER TAX RECEIPTS THAT ARE PUT INTO THIS CALCULUS OF A 1.1 TO $1.3 TRILLION DEFICIT? WHAT WILL HAPPEN? WILL WE CONTINUE WITH QUANTITATIVE TIGHTENING? THESE ARE THE BIG ISSUES AND THIS IS, NOT SURPRISINGLY WHY THE STOCK MARKET IS NOW SHOWING MASSIVE VOLATILITY. YOU KNOW, THERE IS A REASON WHY DEATH VALLEY, THE LOWEST SPOT IN THE LOWER 48 STATES, IS RIGHT NEXT TO MT. WHITNEY, THE TALLEST SPOT IN THE LOWER 48. THAT DIRT FROM DEATH VALLEY HAS TO GO SOMEWHERE. AND IT'S RIGHT NEXT DOOR. THERE IS A REASON WHY 2018 IS VOLATILE, IT'S BECAUSE 2017 WAS THE LEAST VOLATILE YEAR FOR 22% S&P 500 IN HISTORY. AND SO PEOPLE SHOULD NOT BE SURPRISED BY THE FACT THAT THE PARADIGM HAS SHIFTED AND THIS VOLATILITY WILL BE WITH US FOR A LONG TIME.

WAPNER: I WANT TO ASK YOU -- I HAVE LESS THAN A MINUTE LEFT SO LET'S KEEP IT BRIEF FROM HERE TO THE CLOSE. ARE YOU STILL LONG COMMODITIES AND ARE YOU SHORT ANY EQUITIES?

GUNDLACH: YES. I AM ACTUALLY NET SHORT EQUITIES IN MY MACRO FUND AND I HAVE BEEN FOR A WHILE. IT WAS PAINFUL IN DECEMBER AND JANUARY, BUT IT WAS SO OBVIOUS TO ME THAT BITCOIN IS THE DOTCOM OF OUR WORLD TODAY AND THIS MANIA IS SO -- SO SIMILAR TO WHERE WE WERE IN 1999. AND NOW WE'RE SEEING THE SYMPTOMS OF A REVERSAL WITH ALL OF THE VOLATILITY. SO I THINK IT IS NOT A GREAT IDEA TO BE LEVERAGED LONG IN THE EQUITY MARKET. FRANKLY, I THINK RETURNS WILL BE NEGATIVE FOR THIS YEAR. THAT'S NOT A RADICAL STATEMENT ANY MORE, GIVEN THE FACT THE MARKET IS DOWN YEAR-TO-DATE.

WAPNER: YOU GOT. WE'LL LEAVE IT THERE. JEFFREY, THANK YOU AS ALWAYS.

GUNDLACH: THANK YOU FOR HAVING ME, JUDGE.

WAPNER: ALRIGHT. YOU GOT IT. WE'LL SEE YOU SOON. JEFFREY GUNDLACH, AGAIN THE CEO OF DOUBLELINE.

For more information contact:

Jennifer Dauble
CNBC
t: 201.735.4721
m: 201.615.2787
e: jennifer.dauble@nbcuni.com

Emma Martin
CNBC
t: 201.735.4713
m: 551.275.6221
e: emma.martin@nbcuni.com

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