Legendary bond investor Jeff Gundlach continues warning of deflation as the economy sputters. [Note: Gundlach has been calling for deflation for months, which this article had misstated.]
He tells Morningstar:
The problem, though, is that the markets and the economy to date have offered scant evidence to support the inflation case. Stocks are down over the past 10 years. Real estate is down hard over the last five years. Commodities are down sharply over the last two years. Instead of spiking to double digits, bond yields are hugging the ground. M3, which is now calculated only by private economists, is down nicely over the past year. And of course money velocity is moribund: Society has looked into the debt abyss and decided enough is enough with the debt-based consumer economy. So, deflationary forces still prevail.
In other words, Helicopter Ben can do nothing about massive deleveraging.
When will the balance shift? Gundlach says people are deleveraging to reduce risk, but someday they may get nervous about slow growth. Then the Fed may look at inflation:
A well-meaning movement to cut the deficit has at long last arrived, maybe. But cutting the deficit that is supporting the consumer economy will directly depress gross domestic product. If that causes not just a look but a step or two into the deflationary abyss, then maybe the inflation case will move to centre stage.