Josh Brown got an invite to DoubleLine, needless to say, I didn’t, so I’ll simply steal some of his notes. Much of what Gundlach talks about, I have already done so. The question is, why don’t I have $28 billion under management?

Austerity and Growth at the same time – that’s just empty rhetoric in the media. I’m always amazed when I see people put words and thoughts together that don’t mean anything and aren’t meant to be together.” In Jeffrey’s view, there is no way to cut your way to prosperity. Austerity is guaranteed to lead to a weaker economy no matter where it takes place and the alternative, a continuation of debt-financed solutions – is even worse. In other words, there’s no way out other than rolling back over and seeing more defaults at non-currency issuing countries who have unworkable liability structures. He’s looking at you, peripheral Europe.

As you’ll read a bit later, this is a contradiction. Austerity actually means something very different to the useage. What is required for growth is a reduction in consumption, and increased savings, with a concurrent freeing of the market rate of interest so that it can more clearly reflect the natural rate of interest. The dictionary definition, can, quite correctly be linked with growth.

On Spain: “Nothing is more dangerous than a bunch of 20 year olds with nothing to do. Spain has 23% unemployment and 45% unemployment among young people.” He views it as a powder keg and sees civil unrest as highly possible.

Nationalism is on the rise in Europe.” He notes that cooperation is deteriorating and tells a great anecdote about how some racist German reporter, upon noting that Gundlach was a German last name – just laid into the French, criticizing their leadership, economy, crisis response etc. “I bet the reporter wouldn’t have said those things if my last name was Cousteau.”

A topic that I have mentioned. Of personal interest as France or Spain are my preferred destinations, but the current financial mess has unleashed once again similar conditions that allowed Naziism to take hold in the 1920’s Germany.

But again, the military is not even what’s busting the budget. Healthcare and Medicare spending are destroying us (rapidly heading toward 30% of all government capital outlays up from only 5% 20 years ago). Jeffrey notes that he is typically cynical about government spending anyway, “Government programs usually come out to be 10X the cost projected and .1X the benefit expected.”

Then Jeffrey pulls the slide out that Ron Paul has probably had made into a bedspread so he can wrap himself in it nice and snug each night at bedtime – the one showing how federal employees now make double what private sector employees make (largely thanks to pension and retirement benefits that “have got to be cut. Benefits will be slashed.” He notes that federal employees are not payers of taxes, they are “receivers of tax dollars.

Another truism that I have harped on about. Taxes are theft. Government employee’s who produce fuck-all except a headache for the rest of us, are the recipients of this theft.

They’ll need to debate the debt ceiling again in time to raise it, this lands in October of this year- almost perfectly timed to make it a centerpiece of the election.

Jeffrey sees this new debate virtually guaranteeing a dip in the economy if the GOP gets its way. “It is metaphysically clear that if we attack the deficit, the economy will go negative.” That actually may have been the money quote of the whole event, we’ll find out this fall I guess

Unbelievable that these dimwits could repeat the error so soon after the first error was made. But then again, government continues to prove that their stupidity knows no natural bounds.

As far as Operation Twist, Jeffrey says “Make no mistake, this IS QE3.” We’ll see if they extend it past June 30th when it’s set to expire.

On Bernanke’s strategy, he is unconvinced that we’re going to simply “print and pay” as the gold bugs expect us to unless the crisis gets much worse. Instead, Bernanke seems to favor a strategy of moderate inflation, which he can continue to pursue until about 5% CPI, at which point a rate hike is a given.

“The big7 question is what happens when stimulus ends.”

This has been my #1 topic of late. Operation Twist is a QE program. Not as massive as the previous, but, QE all the same, hence the same reaction in the markets. Until QE ends, you simply have to be long.

As to what happens – read my newsletter, while I don’t know what will happen, I will know when and that is the money shot. Think I’m bs’ing, read my newsletter, I’ve been all over this like a rash, and will continue to be so.

Much discussion ensues about the effect of QE programs on the stock market (where they’ve had more visible impact than anywhere else), I know you’ve seen a version of this chart before (every strategist has one in his or her slide deck this spring, it’s the cool thing to do), here’s Jeffrey’s (via Barclays):

His go-to comparison for Apple stock is Google stock last decade, the enthusiasm and expectations were very similar. And then he throws a chart of Google heading into 2007 compared with Apple circa now and there is an audible gasp in the dining room. They are nearly identical and Google hasn’t made a shred of forward progress since…

Well anyone who has been trading for a while knows, or should know that at some point AAPL the stock, crashes back to reality. The key is when? I have no idea. The thing is, you won’t be able to tell from a daily chart. You’ll have to look at at least a weekly, likely a monthly. If you nail it on a daily, well done, but you were simply lucky.

But Jeffrey does believe Bernanke when he says that the Fed will stay at zero Fed Funds Rates through 2014. This despite tha fact that “11 out of the 17 Federal reserve economist predict that he will not.” It’s bizarre to hear Bernanke say he’s staying and the rest of the organization say he’s not.

But Jeffrey notes that the only thing saving us right now is that the Fed can hold down rates. The Fed can’t raise rates because for every 1% rise it means an additional $150 billion in debt service cost (interest payments to US bondholders). “Why on earth would the Fed ever want to do that?” he mentions that this concept of holding down debt service costs is exactly what Japan has been doing – they are now trapped, they can never raise rates again without committing suicide.

And he makes it very clear that the days of raising rates preemptively to counter potential inflation are over. “THE FED WILL NOT RAISE RATES PREEMPTIVELY. EVER.” See? he notes that there’s not been any real inflation since 1985 as the Fed has historically acted preemptively but that was then and this is now.

He also notes that the labor participation rate will continue to force the Fed to keep rates down for longer than anyone thought possible.

Again, all points that I have repeatedly made. Nuff said.

When asked about what the Fed should be doing later on during the Q&A, Jeffrey says that the right thing to do is the hardest – let the debt clear and have a depression. You could hear a salad fork drop when he says this.

But of course, we’ll never do this, he says. So in the absence of letting the everything reboot, at the very least the Fed should “stop with the manipulation of markets.”

That is the answer. Pure Austrian economics.

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