Jeff Gundlach, CEO and CIO of DoubleLine Capital, is speaking in a webcast titled “Something for Nothing” today at 4:15 PM EST. As is the custom, Gundlach will also be taking questions from listeners. Gundlach will be discussing the economy, the markets and his outlook for what he believes may be the best investment strategies and sector allocations for the DoubleLine Total Return Bond Fund and Core Fixed Income Fund.
In the previous webcasts Gundlach has discussed the implications of the Federal Reserve’s current policy.
16:18 EST: Gundlach welcomes everyone to last webcast of the year. He will discuss the things he finds interesting in U.S debt debate and Obamacare and will also discuss other aspects of market.
16:20: Gundlach gives a brief preview of the presentation, discusses federal spending projections, the historical average revenue is 18.1%. Entitlement spending has escalated higher and one has to think about where the revenue is going to come for it. Social security deficit is also escalating due to baby boomers and other factors.
16:22: To balance the current situation, taxes can be increased.
16:24: Obamacare did not get off to a strong start. There are actually quite a few taxes pouring in. Gundlach also mentions his surprise that now we are going to be taxed now and the package has added 17 new taxes. Gov’t packages cost more than advertised.
16:26: Persistently, we have seen inflation rising more in healthcare spending than the rest of the economy. U.S has vastly higher per capita healthcare spending than other countries, which is going to rise even more with Obamacare. Despite higher spending, Americans are not enjoying any higher life expectancy than those nations who spend less.
16:29: Life expectancy, if considered in U.S alone, has been on the rise since the launch of social security. Also mentions an interesting fact that two years before Obama’s first election, an astounding 69% answered that healthcare is the responsibility of federal gov’t in an independent survey. So Obama used that bit very well in his campaign.
16:31: It’s sad that we passed a law that we don’t really know. We will now move to discussion of Fed tapering.
16:33: Of the $16.8 trillion of U.S debt, a major chunk is held by central banks around the globe. U.S mutual funds however hold very little percentage so their selling would not affect the prices as much as anticipated. If foreign banks stop buying bonds, it wouldn’t affect as much since the Fed is controlling the whole game. The Fed is now buying the bulk of all new issues.
16:37: The Fed is in two camps, hawks like Richard Fisher and Jeremy Stein and doves who are data driven, which include the likes of Janet Yellen.
16:40: Gundlach says that its a good sign that the Fed is also not sure about the effects of tapering off asset purchase program.
16:42: Quarterly change in household debt is finally rising in the positive zone whereas student borrowing has now doubled since 2008. QE had contradictory effects on consumer spending. Low-end retail stocks have boomed in the QE phase whereas luxury retail has gone lower, which is interesting since it is pointed out the QE is only helping the rich people.
16:45: Huge drops in interest rates on credit cards and auto loans in recent years has translated to a relatively muted effect on economy compared to history.
16:50: Gundlach says the unemployment rate has aligned to a similar rate both for college graduates and for those who have less than a high school diploma. With more student loans, college graduates are having more and more labor participation issues, thinks Gundlach. He also discusses how pays for different levels of education are not going up compared to historical levels.
16:52: Gundlach likes to compare 30 year USTs to corporate bonds. A lot of money has gravitated to high yield corporate bonds which has boosted returns for bond funds this year.
16:55: Some people think U.S inflation numbers are cooked which would mean that there is no economic growth. One reason that Fed sticks to QE is because the inflation is still low. Gundlach moves on to Japan, says Japan has managed to bring some inflation through its own fiscal easing whereas other economies haven’t.
17:00: If the Fed stops buying bonds, Gundlach sees pension funds coming up as major buyers.
17:03: Gundlach says that Asian forex is a good signal for U.S bond yields, when currencies weaken, U.S bond yields rise and vice versa.
17:05: DoubleLine Total Return Bond Fund DBLTX is now 40% invested in mortgage securities. Gundlach noted that renter-occupied units have rocketed whereas owner-occupied units have slowly gone down.
17:10: Gundlach is now talking about DBLTX exposure. RMBS make up for 32% of DoubleLine Total Return Bond Fund. Non-agency mortgages make up for 29% of the portfolio. Home prices are down 14% on average since these holdings were initiated.
17:15: Gudlach thinks that the non-guaranteed mortgage holdings in his portfolio are vastly more attractive than high yield bond holdings.
17:17: Gundlach is very fond of non-agency mortgage market right now. Core Fixed Income Fund has 36% exposure in IG bonds and . Gundlach says the EM debt holdings have underperformed this year.
17:20: Gundlach is taking questions now.