In his webcast titled “1984” in remembrance of George Orwell’s dystopian novel, DoubleLine Founder and CEO Jeffrey Gundlach on Sept. 10, 2024, dives “into the subject of the Fed and some of the variables that will likely underpin their logic and their thinking” at the Sept. 18 meeting of the rate-setting Federal Open Market Committee (FOMC). In his analysis, Mr. Gundlach finds both components of the Fed’s dual mandate, employment and prices, support a rate-cutting cycle. If energy prices remain near present levels, he expects sub-2% Consumer Price Index (CPI) reports in a few months, and he cites new signals of an imminent recession. Here is a direct video link.

Despite the latest University of Michigan’s consumer confidence index nearing 2008 recession lows (blue line below since 1990), the share of savings allocated to equities remains aggressively above 40% (green line). This gap has traditionally closed with equity allocations following consumer confidence down as stock prices tumble and the quest for cash accelerates.

From the highest 12-month S&P 500 forward price-to-earnings ratio (22x) since 2021 and 2000 (shown below since 1978), the scope for price-to-earnings contraction is truly epic.

And although mortgage rates are more than 100bps off their peak last October, still-high property prices mean that US home affordability remains near its worst level since the previous housing bubble peak in 2006. The downside in real estate–the most widely held and highly leveraged asset market–looms large.