Mr. Chitnis had a little bit different take on the economy in general. Like Mr. Gundlach he thought that something would happen with taxes and spending, however his thinking that it would be big. Something that would be seen as the "grand deal" of 2011.
His rationale was that neither political party wanted the unemployment issues to drag on until the elections in 2012 and with the Deficit Reduction Committee's recommendations due on Nov. 23 of this year and approval by Congress by Dec. 23rd, then he felt something big was going to happen to reignite growth. The reasoning was that there would be an across the board reduction in spending that would affect both political parties if a consensus could not be reached by the deadline.
His discussion also took a look at indicators and he felt that another recession was not coming and that growth was actually stronger than many people were admitting.
A couple of other points:
- consumer sentiment was very negative but retail sales were holding steady.
- the situation in the US was not like the lost decade in Japan and he did not see a deflationary spiral happening.
- with the election looming he expected job creation to be number one focus
- with 10 year treasuries yielding under 2% the market was pricing in deflation. He felt this was incorrect and coupled with true inflation at 3% you would be losing 1% in real nominal interest per year by holding.
- He felt that 10 Year rates could go to 4% without slowing growth.
His main theme was that while bond fund holders had done well over the past few years, that the fixed income space could return very little and actually lose money on an inflation adjusted basis in the coming 2 to 5 years. His advice was to keep duration low (like Gundlach), diversify fixed income holdings and consider using hedges to lock in principal.