‘Stock Markets Should be Down Massively,’ but Investors ‘Hypnotized that Nothing Can Go Wrong’

Bond bull Gundlach U-turns, goes ‘maximum negative’ on Treasuries
Stock investors have entered a ‘world of uber complacency,’ Jeffrey Gundlach, CEO of DoubleLine Capital in Los Angeles, explained – we assume with some bafflement.
On Friday, the S&P 500 hit another all-time high, after it was reported that the US economy grew at a painfully slow rate of 1.2% annualized in the second quarter, after a first quarter of 0.8% growth, which produced a first-half growth of 0.9% annualized, the worst in four years.
Even ‘adjusted’ ex-bad-items earnings of S&P 500 companies have declined on a year-over-year basis for four quarters in a row. Total business sales in the US have declined since mid-2014. Defaults of companies rated by Standard & Poor’s have jumped to the highest level since the Financial Crisis. Overall business bankruptcies are soaring. Yet, stocks march higher.
So Gundlach told Reuters in a telephone interview: ‘The artist Christopher Wool has a word painting, ‘Sell the house, sell the car, sell the kids.’ That’s exactly how I feel – sell everything. Nothing here looks good.’
‘The stock markets should be down massively, but investors seem to have been hypnotized that nothing can go wrong,’ he said.

This post was published at Wolf Street on July 31, 2016.