Liquidity Crunch Looms, Says Bond King
Billionaire investor Jeffrey Gundlach, nicknamed the “Bond King,” believes the Federal Reserve (Fed) will cut interest rates later this year. He doesn’t expect this to be due to improved inflation or employment numbers, but rather because of looming liquidity problems. Gundlach predicts a crisis stemming from a lack of readily available cash will force the Fed’s hand.
Harvard’s Cash Problems: A Canary in the Coal Mine?
Gundlach points to Harvard University’s recent bond sales as a prime example. Harvard, despite its massive $53 billion endowment, has had to tap the bond market twice for operating cash. He suggests this is because a significant portion of the endowment (around 40%) is tied up in illiquid assets like private equity and private credit. Other institutions, he says, are facing similar issues. This growing illiquidity, he argues, is a major concern and a potential trigger for a market downturn.
Rate Cut Prediction
While Gundlach anticipates a rate cut by year’s end, he believes the cuts will be less drastic than many in the market currently predict. He’s revised his prediction downwards, but still sees the possibility of rate cuts.