Jeff Gundlach of DoubleLine Capital was interviewed by Morningstar earlier this week to discuss the ramifications of the USA’s credit downgrade and how it might impact the markets. Gundlach says the rating downgrade uncalled for as there is no such thing as the USA not being able to meet its payments in a currency it can print. More importantly, Gundlach notes that he believes S&P was including an inflation component in their downgrade – something S&P isn’t in the business of forecasting.
Gundlach believes the current low bond yields make perfect sense as bond investors are essentially forecasting continued economic weakness. He says there is more upside in Treasuries if Congress continues to make cuts that weaken the economy. Gundlach says the potential for more stimulus is limited and that QE2 was a failure.
The full interview is attached: