AP Photo/Richard DrewWith the US economy running at a fraction of its normal capacity due to the coronavirus, industries that have relied on an active consumer are under extreme duress.
Now, $2 trillion of government aid is on the way. But not all think every portion of the economy is deserving of a bailout.
Jeffrey Gundlach, the CEO and chief investment officer of the $140 billion investment firm DoubleLine Capital, thinks $58 billion of government aid earmarked for US airlines isn't justified.
"Let them go bankrupt," he said in a recent DoubleLine webcast. "The planes aren't going to disappear."
Gundlach isn't mincing words in his assessment of the airline industry's current bind. But his lack of sympathy towards the cohort isn't without merit - and he notes the imprudent usage of cash and overzealous corporate forecasts to bolster his thesis.
Airlines have already come under fire in recent weeks as it's come to light that they've used 96% of their free cash flow to buy back shares over the past 10 years. Gundlach's latest comments add to the chorus of outrage.
"These companies leverage themselves so much up through buybacks and overconfident projections - and now they have a terrible situation that's been dealt to them," he said. "But when you buyback $45.5 billion of your stock, you've obviously drained a lot of liquidity that could have been used for a rainy day."
Now, Gundlach thinks that the government's intervention in the space is essentially rewarding careless behavior.
"But getting $58 billion - one way to think about that - it's like the government is buying back the shares that the companies bought themselves for $45.5 billion ... for $58 billion - for a massive profit."
Prior to the $58 billion of government aid being approved for the airlines, Gundlach tweeted about how he was thinking about the situation.
If we apply Gundlach's logic in the tweet above to the government's approved bailout, the 10% profit he spoke of on March 19th is roughly about 27% today.
"That doesn't seem right to me," he said.
To Gundlach, the airlines that are having trouble making ends meet do not deserve such an outlandish bailout. If the $45.5 billion was allocated and utilized differently, $58 billion worth of government aid would not have been necessary.
With all of that under consideration, Gundlach ultimately sees the bailout putting more strain on Main Street's already dubious relationship with Wall Street.
"I think these types of things are going to raise a lot of rancor from Main Street America," he said. "But the buybacks, obviously, are going away - and that's one major underpinning that's not coming back anytime soon for large-cap US stocks."
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