CNBC News Releases

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

WHEN: Today, Monday, April 23, 2018

WHERE: CNBC's "Power Lunch" – from the Sohn Conference

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with DoubleLine Capital Founder and CEO Jeffrey Gundlach on CNBC's "Power Lunch" (M-F 1PM – 3PM) today, Monday, April 23rd. Following is a link to vide of the interview on CNBC.com: https://www.cnbc.com/video/2018/04/23/gundlach-theres-no-signs-of-recession-right-now.html?play=1.

All references must be sourced to CNBC.

TYLER MATHISEN: ALRIGHT WE WANT TO HEAD BACK TO WHERE THAT IDEA WAS FIRST SURFACED, THE SOHN CONFERENCE IN NEW YORK. SCOTT WAPNER IS THERE TO SIT DOWN WITH DOUBLELINE CAPITAL CEO JEFF GUNDLACH. HI, SCOTT.

SCOTT WAPNER: HI TYLER. THANKS SO MUCH. YEAH, JEFFREY GUNDLACH GOT OF OFF THE STAGE A LITTLE WHILE AGO. TWO INTERESTING INVESTMENT IDEAS. THE FIRST REALLY PLAYING INTO A THEME WE TALKED ABOUT IN YOUR OFFICE. YOU HAD LONG XOP IN ENERGY PLAY. AND YOU TOLD ME BACK IN WHAT, DECEMBER –

GUNDLACH: DECEMBER 13th.

WAPNER: THAT YOU SAID, "GO LONG COMMODITIES." THIS PLAYS INTO THAT.

GUNDLACH: RIGHT, IT DOES PLAY INTO THAT. THAT WAS REALLY GOING TO BE THE CRUX OF MY PRESENTATION. BASICALLY WHAT I'VE BEEN TALKING ABOUT IS THAT THERE ARE MANY INDICATORS THAT SIGNAL INFLATION. THAT'S A CHANGE. FOR YEARS THERE WEREN'T REALLY INFLATION INDICATORS. SO WHAT I TALKED ABOUT ON THE STAGE HERE ARE THINGS LEADING FOR THE CORE CPI LIKE GDP, REAL GDP, LIKE PMI SURVEYS. AND THEY LEAD WITH A PRETTY HIGH CORRELATION OF 0.8 AND THEY DO IT WITH A YEAR AND A HALF TO A YEAR AND THREE-QUARTER LEAD TIME AND THEY TURNED UP A YEAR AND A HALF, A YEAR AND THREE-QUARTERS AGO. AND SO, ALSO HISTORICALLY WHEN YOU GO INTO LATE ECONOMIC CYCLE AND PARTICULARLY WHEN YOU START GETTING CLOSER TO A RECESSION, WHAT A LOT OF PEOPLE DON'T UNDERSTAND IS COMMODITIES ACTUALLY GO UP A LOT, EVERY TIME GOING BACK TO 1972. SO, ALSO THE ENERGY SECTOR AND I'VE HEARD THIS A LOT ON CNBC, CAUSE IT'S A VALID POINT, IT'S LAGGED IN A WAY THAT'S KIND OF BIZARRE THIS YEAR. IT'S NOT A VERY GREAT PERFORMING SECTOR AND YET OIL HAS GONE UP TOWARDS $70 A BARREL, WEST TEXAS INTERMEDIATE, AND IF YOU LOOK HISTORICALLY OF THE ENERGY SECTOR VERSUS S&P 500, NOT SURPRISINGLY IT TENDS TO BE CORRELATED WITH MOVEMENTS IN OIL. THAT HASN'T HAPPENED THIS TIME AND I THINK THERE'S CATCHUP THERE. SO I THINK IT'S FAIRLY COMPELLING. THE CHARTS LOOK REALLY GOOD, TOO, ON THE XOP, THE EXPLORATION PRODUCTION PART OF THE ENERGY SECTOR. THE ONLY PROBLEM WITH THAT IDEA, I THINK, IS MAYBE WE GO INTO A RECESSION. AND WE MIGHT GET A GAIN IN THAT SECTOR GOING INTO THAT BUT ONCE THE RECESSION COMES, IT'S ALMOST CERTAIN TO GO DOWN. SO I WAS A LITTLE RELUCTANT TO JUST HAVE SOMETHING THAT WAS SO ECONOMICALLY DEPENDENT.

WAPNER: DO YOU THINK WE COULD POTENTIALLY BE IN A RECESSION THAT SOON THAT WOULD IT UPSET THAT KIND OF INVESTMENT IDEA?

GUNDLACH: I THINK WE COULD, THESE SOHN RECOMMENDATIONS ARE ARBITRARILY JUDGED ON ONE-YEAR HORIZONS, WHICH IS PRETTY STRANGE. I MEAN, THE PICK I DID LAST YEAR WAS UP 35% LIKE THREE MONTHS AGO, NOW IT'S UP 13. BUT SO, YOU KNOW, I GET TAGGED WITH UP 13, WHICH ISN'T BAD. BUT YEAH, I THINK THERE'S NO SIGN OF RECESSION NOW. SO VISIBILITY IS MAYBE SIX MONTHS ON RECESSIONS. BUT I DO THINK WE COULD SEE ONE POTENTIALLY IN THE FIRST QUARTER OF NEXT YEAR. I'M NOT PREDICTING THAT. I'M JUST SAYING IT'S NOT -- IT WOULDN'T BE THAT UNLIKELY GIVEN THE LENGTH OF THIS ECONOMIC CYCLE, GIVEN THAT INTEREST RATES HAVE BEEN RISING, GIVEN THAT STOCK MARKET IS WOBBLING COMPARED TO WHERE IT WAS IN THE FOURTH QUARTER OF LAST YEAR. I MEAN, THESE THINGS ARE GIVING US THINGS TO THINK ABOUT.

WAPNER: YOU DON'T THINK THE NEW TAX LAW HAS EXPANDED THE CYCLE OR EXTENDED IT?

GUNDLACH: I THINK THAT'S PRETTY MUCH PRICED INTO PEOPLE'S THINKING, THAT NARRATIVE ON THE TAX SITUATION. SO, IT PROBABLY DOES EXTEND IT. IT'S PROBABLY WHY WE ARE NOW CHALLENGING THE LONGEST EXPANSION IN THE POST-WAR ERA.

WAPNER: IN OTHER WORDS, THINGS MIGHT HAVE MOVED –

GUNDLACH: MIGHT HAVE ALREADY HAPPENED.

WAPNER: WHAT DO YOU MAKE OF – YOU TALK ABOUT RECESSION, PEOPLE LOOK AT --AND OBVIOUSLY WANT TO TALK ABOUT RATES WITH YOU, NOT NECESSARILY JUST ENERGY, THE 210 SPREAD. PEOPLE LOOK AT THAT AND THEY SAY, "WHAT'S UP WITH THAT? IS THAT TELL US SOMETHING WE NEED TO BE WORRIED ABOUT?"

GUNDLACH: NOT YET, ALTHOUGH IT WAS GETTING A LITTLE SKINNY A WEEK OR SO AGO WHEN IT GOT DOWN 42 BASIS POINTS. 50 IS A LEVEL THAT – ONCE IT GETS BREACHED, IT DOES START TO GIVE PAUSE BECAUSE HISTORICALLY WHEN YOU GO THROUGH 50 BASIS POINTS ON TWO TENS, YOU GENERALLY AT SOME POINT GO TO ZERO, YOU GO FLAT. IT'S PRETTY UNUSUAL. YOU DON'T GO TO 50 AND GO BACK INTO STEEPENING CYCLE, TYPICALLY. THERE'S A LOT OF CAVEATS IN THE CYCLE. THERE'S BEEN SO MUCH MANIPULATION QUANTITATIVE EASING AND NEGATIVE INTEREST RATES OVERSEAS AND THE LIKE. IT'S POSSIBLE THAT PAST BEHAVIOR WON'T EXACTLY BE PROLOGUED FOR WHAT'S HAPPENING. FOR EXAMPLE, IN JAPAN, THEY HAD VERY, VERY LOW INTEREST RATES, STILL DO FOR A LONG TAME. THEY HAD SEQUENTIAL RECESSIONS WITHOUT AN INVERTED CURVE. MAYBE IT HAS SOMETHING TO DO WITH RATES BEING SO LOW. THAT WHEN RATES ARE VERY, VERY LOW, WILL THE CURVE REALLY INVERT AT ALL? BECAUSE I CAN SEE WHY IN THE TEN-YEAR YIELD IS 8 AND THE TWO-YEAR IS 8.50, I CAN SEE WHY PEOPLE WOULD STILL BUY THE TEN-YEAR. YOU'RE GETTING EIGHT, WHICH STILL SATISFIES INVESTMENT NEEDS. BUT WHEN THE TEN YEAR IS 2.75, WHICH IT WAS, THE TWO YEAR IS DOWN TO 2.25, IT DON'T THINK IT'S REALLY THAT EXCITING TO PICK UP 50 BASIS POINTS TO TAKE THAT AMOUNT OF RATE RISK. SO, MAYBE THE CURVE WON'T INVERT THIS TIME. BUT IT IS TELLING US CERTAINLY THERE'S SOMETHING TO START LOOKING AT FOR RECESSION WARNING.

WAPNER: WHAT DO YOU MAKE OF THE TEN-YEAR IN AND ITSELF? I MEAN, HERE WE ARE KNOCKING ON THE DOOR ABOUT TO BUST IT DOWN AT THREE. THEN WHAT HAPPENS?

GUNDLACH: YEAH, WE GOT UP TO 2.94. WELL, I'VE BEEN OF THE OPINION THAT CLOSING ABOVE THREE WOULD LEAD TO ACCELERATION OF HIGHER

YIELDS. AND WE HAVE NOT CLOSED ABOVE THREE. AND THE OTHER BIG LEVEL, I THINK IT'S EVEN BIGGER, IS 3.22 ON THE TEN-YEAR, WHICH WE DID CLOSE THAT, THAT WAS THE HIGH CLOSE THIS YEAR AND THEN WE BACKED OFF PRETTY NICELY. BUT NOW BACK UP TO 316, 317, SO I THINK BREAKING ABOVE 3 WOULD BE THE SAME AS BREAKING ABOVE 322 ON THE THIRD YEAR. BUT WHAT'S INTERESTING MOST RECENT RISE 372 UP TO 299. THIS MORNING IT'S HARD TO COME UP WITH WHY IT'S HAPPENING. IT'S LIKE THE BOND MARKET IS KIND OF CHRONICALLY WEAK IN RECENT DAYS. I'M REMINDED OF THE OLD ADAGE THAT YOU NEED BUYING TO MOVE PRICES UP BUT PRICES CAN FALL OF THEIR OWN WEIGHT. AND I THINK IT HAS SOMETHING TO DO WITH ALL THIS BOND SUPPLY AND DEFICITS I'VE BEEN TALKING ABOUT NOW FOR 18 MONTHS. IT'S NOW HERE IN REALTIME. I MEAN, WE'RE BORROWING $100 BILLION A MONTH, YOU KNOW. AND THAT'S KIND OF A LOT. SO, I THINK THERE IS A LOT OF NEGATIVE POSITIONING AGAINST THE BOND MARKET, SO YOU WOULD THINK MAYBE IT WOULD BE STUBBORN TO GO TO HIGHER YIELDS BUT PRICES CAN FALL OF THEIR OWN WEIGHT. IT LOOKS TO ME LIKE SHORTS HAVE NOT COVERED.

WAPNER: ARE YOU WORRIED AT ALL ABOUT THE FED MAKING A POLICY MISTAKE?

GUNDLACH: OF COURSE. OF COURSE. THE FED IS BACK INTO A VARIANCE OF THEIR OLD SCHOOL MODE WHERE 10, 12 YEARS AGO, THEY WERE HIKING AT EVERY MEETING. AND THEY DO IT UNTIL SOMETHING BREAKS. NOW THEY ARE DOING IT ONCE A QUARTER. BUT, THEY SEEM INCLINED TO DO IT UNTIL SOMETHING BAD HAPPENS. DON'T FORGET THEY ARE DOING IT AT THE SAME TIME THAT WE'RE RAMPING UP QUANTITATIVE TIGHTENING. SO WE HAVE THIS DOUBLE BARRELED FED THING. AND I THINK THAT IS SOMETHING TO BE WORRIED ABOUT. THE FED GONE FROM A MODE OF, "WE WILL RAISE RATES WHEN THE DATA GETS BETTER," TO A MODE OF, "WE WILL RAISE RATES UNLESS THE DATA GETS WORSE." SO, THAT PUTS THEM INTO THAT SORT OF SEMI-AUTOPILOT MODE, WHICH IN THE PAST HAS LED TO PROBLEMS. AND CERTAINLY THE TWOS TEN SPREAD WE TALKED ABOUT A MOMENT AGO, THAT CERTAINLY ISN'T GIVING A WARM AND FUZZY FEELING ABOUT WHAT THE FED IS DOING. IT MAY NOT BE ON THE CUSP OF A BIG MISTAKE YET BUT IT'S NOT ACTING IN A WAY I THINK THE FED WOULD FIND REASSURING.

WAPNER: LET ME LASTLY ASK YOU ABOUT THE OTHER INVESTMENT ADVICE YOU HAD, SHORT FACEBOOK. REALLY?

GUNDLACH: YEAH, REALLY.

WAPNER: WHERE DID THAT COME FROM?

GUNDLACH: WELL, IT CAME FROM A) I WAS LONG THE ENERGY THING AND DIDN'T WANT TO BE RECESSION – FULL ON RECESSION EXPOSED IN MY PICK, AND SO I WANTED TO SHORT AGAINST IT. AND I SAW THE CONGRESSIONAL TESTIMONY, WHICH I THOUGHT WAS TERRIBLE. I THOUGHT IT WAS DISMISSIVE. I THOUGHT IT WAS INSINCERE.

WAPNER: BY MARK ZUCKERBERG?

GUNDLACH: YES. I THOUGHT THAT HE WAS VERY SEMANTIC IN THE WAY HE WAS ANSWERING QUESTION AS OPPOSED TO FULLSOME. AND I – ONE OF THE CHARTS ON STAGE TODAY, ONCE THE REGULATORS SHOW UP, THEY TEND TO CAUSE PROBLEMS. THERE'S BASICALLY TWO MODES OF REGULATION BY CONGRESS, NONE AND OVERREACHING. AND I THINK WE'VE MOVED FROM NONE AND WE'RE ABOUT TO MOVE INTO OVERREACHING. AND I USED A SLIDE THAT WHEN THEY START REGULATING BIOTECH COMPANIES, FOR EXAMPLE, THE STOCKS JUST STARTED TANKING. AND FACEBOOK DROPPED, IT HASN'T TANKED – I'M ACTUALLY HAPPY ABOUT THAT BECAUSE IT LEADS TO BETTER POSITION FOR THIS RECOMMENDATION. BUT I'M REMINDED, I USE THE METAPHOR OF THE

SAN FRANCISCO EARTHQUAKE AND THE STOCK MARKET. THE DAY AFTER THE SAN FRANCISCO EARTHQUAKE, THE LEGENDARY INVESTOR JESSE LIVERMORE SHORTED THE MARKET BECAUSE HE COULDN'T BELIEVE THAT THE MARKET WAS ACTUALLY UNCHANGED. AND HE SAID, THIS IS A BIG EVENT AND IT HASN'T BEEN DIGESTED INTO THE BULLISH PSYCHOLOGY OF THE MARKET. I THINK THE REGULATION HERE IS A BIG EVENT. AND I ALSO THINK THERE'S NEVER ONE COCKROACH IN THE KITCHEN. SO, WE'VE HAD THIS APOLOGY TOUR. WE'VE SEEN IT BEFORE. THIS ISN'T THE FIRST APOLOGY TOUR. I THINK WE'RE ALREADY ONE APOLOGY TOO FAR ON THIS THING. ONE MORE PROBLEM AND THERE'S GOING TO BE ONE BECAUSE THERE'S NEVER ONE COCKROACH. I JUST DON'T KNOW WHAT WILL HAPPEN WITH THE CREDIBILITY OF THESE, "I'M SORRY, WE'RE GOING TO MAKE IT BETTER TYPE STATEMENTS." AND I DON'T FIND IT REASSURING ONE OF HIS ANSWERS THAT AI IS GOING TO ANSWER OUR PROBLEMS FIVE OR TEN YEARS FROM NOW. THIS PROBLEM BEGAN YESTERDAY, NOT FIVE OR TEN YEARS FROM NOW. AND SO I THINK THAT THERE'S A LOT OF – I THINK THERE'S GOING TO BE A LOT OF TURBULENCE IN THE AIR FOR THIS FLIGHT.

WAPNER: ALRIGHT. WE'LL SEE HOW THE PLANE GETS THROUGH IT AND SEE IF IT LANDS WELL.

GUNDLACH: WE'LL SEE.

WAPNER: JEFFREY, THANK YOU SO MUCH. APPRECIATE IT VERY MUCH. JEFFREY GUNDLACH IS THE FOUNDER AND CEO OF DOUBLELINE. GUYS, BACK TO YOU.

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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