DoubleLine Funds CEO Jeffrey Gundlach says it’s “a strangeenvironment [for] a tax cut.”

Discussing the Republican tax effort during a webinar withinvestors on Tuesday, he admitted that it also is “tough to opineabout a tax plan that has not been finalized.”

However, the timing of the cuts and other moves are odd giventhe current state of the economy, Gundlach explained, versus thatof around 30 years ago “when the economy needed a boost.”

Today, “We are in year eight or nine of an expansion, and [theeconomy is] picking up … and yet [we’re] cutting taxes,” Gundlachsaid.

“A tax cut will reduce revenue, and it will growthe deficit and therefore, it will probably grow bond supply, andperhaps boost economic growth,” the fixed income fund managerstated.

“And if it does … it is going to be bond-unfriendly. There’santicipation of a bit more unfriendly bond environment” in themarkets, he explained.

The reforms could also hurt buyers of municipal bonds in somemarkets, such as New York and California, if state and local incometax deductions are eliminated.

“It’s not really a tax cut at all relative to the buyers of themuni market,” Gundlach said. “For them, it’s really a taxincrease.”

Commodity window

Sharing charts on the low state of commodity prices, he shared:"We're right at that level where in the past you would have wantedcommodities instead of stocks."

They could benefit from further economic growth and outputgains. The global economy is "definitely hanging in there,"Gundlach stated.

"If you ever thought about buying commodities, ... maybe youshould buy them now," he said, describing the low level of theS&P Goldman Sachs Commodity Index vs. the high level of theS&P 500.

Asked during the webinar about having 10% of a portfolio ingold, Gundlach explained that a broader investment of 10% to 15% incommodities would be preferable.

Yellen’s future

“It looks like [Federal Reserve Chair] Janet Yellen is going toend up with a pretty good legacy,” Gundlach said.

Yellen, he explained, “got us off of zero [percent], and shestarted us on the wind down — the quantitative tightening — and sofar, nothing has blown up,” he said.

Jerome Powell, poised to take over the role from Yellen ifapproved by the full U.S. Senate, may have some headwinds when itcomes to the pattern of future rate hikes, he says: “I think Mr.Powell is going to find that attaining consensus among the Ph.D.economists is not going to be easy.”

As for what’s next for equities, “It is going to be veryinteresting to see how the markets can hang on to the easy gainsthat were made in 2017,” Gundlach said. “It’s just so far, so good.The Fed has tightened four times, they’ve embarked on quantitativetightening.”

He sees the U.S. dollar poised to move down, which is one reasonhe remains upbeat on emerging markets and bullish oncommodities.

The dollar is likely to weaken, Gundlach explained, because Fedtightening could be less than anticipated.

As for the falling yield curve between the 2-year and 10-yearTreasury yield, it’s "getting to the point where it's worthwatching," he said.

With some market participants starting to “explain away theyield curve," this could signal that the U.S. economy is in themiddle of the tightening cycle, not the beginning, he added.

"It's pretty relentlessly flattening," explained Gundlach. Ifthe yield curve were to go to zero “then we get a flashing yellowlight for a recession."