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Gundlach, who nailed Trump's 2016 election, says he'll win again 'if the economy holds'

Billionaire bond investor Jeffrey Gundlach, who accurately predicted Donald Trump's presidency in early 2016 before the Republican primaries concluded, thinks that Trump is going to win re-election if the economy holds together.

The president’s approval ratings are under-water, and he lags virtually all of the major Democratic contenders in generic polls. However, the relative outperformance of the U.S. economy — which is helping to keep him competitive in swing states — may be Trump’s saving grace.

"It's all about the economy. And I think that if the economy holds together — and it just might — into the election, I think Trump's going to win," Gundlach, the CEO of $150 billion DoubleLine Capital, told Yahoo Finance in an exclusive interview.

Gundlach characterized the crowded slate of candidates on the Democratic side as "pretty weak," renewing his criticism of those queuing up to oppose the president.

[See Also: Gundlach: Here’s why the stock market could get ‘crushed’ in the next recession]

Democratic presidential candidates from left, Sen. Cory Booker, D-N.J., Rep. Tulsi Gabbard, D-Hawaii, Sen. Amy Klobuchar, D-Minn., South Bend, Ind., Mayor Pete Buttigieg, Sen. Elizabeth Warren, D-Mass., former Vice President Joe Biden, Sen. Bernie Sanders, I-Vt., Sen. Kamala Harris, D-Calif., former technology executive Andrew Yang and investor Tom Steyer participate in a Democratic presidential primary debate, Wednesday, Nov. 20, 2019, in Atlanta. (AP Photo/John Bazemore)

"And you can sort of see that from the polling, that you have a flavor of the month thing kind of going on," he said. Gundlach pointed out that California’s Kamala Harris and Massachusetts’ Elizabeth Warren "looked good for a while” before losing momentum. Harris dropped out of the race on Wednesday, after months of sagging poll numbers and reported turmoil in her campaign.

"And they've really just tanked in the past few months," the billionaire said, adding that the new “flavor of the month" is Pete Buttigieg. He lauded the South Bend mayor’s public speaking skills, but pointed to other flaws.

"He's just so well-spoken, so good on his feet. But he sort of looks like he's running for student council,” Gundlach joked. “He's so young. So it's very hard for me to believe that he's really going to endure, even though he is very talented. I think he has a great future."

At the Sohn Conference in May, Gundlach said he didn't see any of the candidates being winners and slammed former Vice President Joe Biden as the "Rasputin of politics — the guy who won't go away."

"I can't find any winners" in the Democratic field, he said, suggesting the only way Trump won't win re-election is if there's a recession.

"And if there is a recession, I don't even know if he can run, because he runs on braggadocious language,” Gundlach said. “And it's difficult to get braggadocious if you have a negative sign from the GDP."

Lower recession odds

Gundlach has been bearish on the economy, but lowered his probability of a recession before the 2020 election to 40% — down from the 75% odds he put forth this fall.

[See Also: Top DoubleLine investor on 2020’s biggest investment risks]

The billionaire also suggested Trump may have had a hidden agenda with his trade war with China that may have prompted the Federal Reserve — a frequent foil of Trump’s — to take action.

"However, maybe he's just really diabolically clever after all, and he put on the tariffs to weaken the economy so that the Fed would cut interest rates. We all know monetary policy works with a lag,” he said.

“So the Fed's cut rates three times. Maybe that lag will be enough to keep the economy going into the election. He also has those tariffs on, which he can remove," Gundlach added.

Another possible lever Trump could use to boost the economy is tax cuts 2.0, Gundlach said — specifically a payroll tax cut. That would "supercharge consumer spending in the short term” because it goes directly to the middle class, which would then spend that cash.

The administration “also talked about dropping the middle-class tax rate to 15%. I don't know if that's just a campaign talking point. But if you actually, I don't know if you could pass these tax cuts given the political environment, but if you could, that would also keep the economy going,” he said.

Julia La Roche is a Correspondent at Yahoo Finance. Follow her on Twitter.

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