Jeffrey Gundlach, DoubleLine Capital CEO, discusses investment opportunities in fixed income, with CNBC’s Gary Kaminsky.
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they can inspire our students. let’s solve this. gary made his way from chicago to los angeles and brings us the ceo, cio, and co-founder of double line capital. good morning, gary. good morning and thank you and i am smart enough to know the viewers want to hear from jeffrey and not me. let’s get right into it. ten year treasury. i think it bottomed out, prices peaked in july of this year. we talked about that a few weeks in advance. i don’t see any investment value in the ten-year treasury at all. the yield has risen towards around 1.8. what’s it is big deal? i think i was in the new york stock exchange in april and i think it was right where it was today and i said what are you hoping for, 1.25? still doesn’t give you much of a return. i am struck by the bullishness that suddenly emerged for treasuries and ultimately the dollar and the teeth of the european crisis. it struck me as being almost an exact mirror image of where we were a long time ago in the mid-80s when voelker was in charge, fighting inflation, inflation was falling. there is a huge real interest rate on the ten-year treasury of 10 percentage points and everybody hated it. where do we see the ten-year a year from today? i have been saying i think the yield could rise 100 basis points from where it is now even before year end. for this reason we have gone to the lowest interest rate exposure in history in the summer of this year and people keep saying what is the catalyst? why would the ten year treasury go up? it is going up. it has been going up. it was 1.39 in july, and here it is a couple of months later and it is already up about 50 basis points. i think the reason ten-year treasury rates can go up is because it is so unattractive as an investment at 1.8. you were on the other side that far when everybody hated the ten-year. right. you mentioned the interest rates. what about qe3? well, it is not going to be very effective. it is not very big. it is bernanke trying to do something, and you can’t blame him. the situation in washington, congress, the president is so gridlocked. there is no addressing of the real issues in this country so you’re left with the fed and trying to do what they can do. it is futile. i thought the most interesting thing about bernanke last week, of course, was that statement that we’re basically trying to get jobs now by doing qe3. i don’t see the connection at all. also, that we’re going to keep doing this even when you get a few months or perhaps even longer than that of stronger data, so we’re in this kind of situation of zero interest rates and the fed doing what they can seemingly as far as the eye can see, but it won’t bring interest rates down. just look at the bloodless verdict of the market. did you do anything differently in this building last week as a result of qe3 in terms of the portfolio or the portfolios you run? not really. it is more in advance a little bit. we felt that qe3 would probably be a mortgage-backed securities buying program and something we invest a lot in and we figured we would be buying the certain pass through securities in the market and those would be pretty strong beneficiary and it is absolutely true. ten-year treasury prices have gone down since july, the ten year treasury yield is up 40 plus basis points and that means a decline of about 4% or so and mortgage backed securities on their high so we were oriented towards the agency market and now the problem with all of this manipulation of the market is you can play a small ride to a gain but once you get to that gain what’s the forward looking prospect? it is less. bernanke, you mentioned bernanke. should he be reappointed to the fed? has he done a good job as head of the federal reserve? it kind of depends what you think the fed is supposed to do. if you’re looking for the fed to be some sort of back stop to everything in the economy, then i guess bernanke has done a good job. i am sort of a smaller government, smaller intervention type of fill so far i can person. i don’t like to see the markets being so grossly manipulated. as my friend jim grant says we’re living in a hall of mirrors where you don’t really know what investors think because the price discovery is being destroyed by government intervention and to that basis i don’t really like what the fed is doing. i think that we should have market prices. you want somebody who is going to basically let price discovery happen naturally. let’s talk about equities. you made comments recently about the equity markets. this is a bond shop, and obvious i will you made a very timely call in terms of equities. what’s your outlook on the stock market here in the united states and around the world right now? if we want to talk about stocks, so-called risk assets, in jenny don’t like risk assets at the level they’re at today. in the short-term and i am not very positive. in the longer term i think these policies that the fed is trying to put in place mean that longer term you want to be involved in real businesses and real assets that can have the ability to preserve purchasing power and move forward. i don’t think we’ll have a lost decade and i won’t buy them because everything is so high. i was fond of the spanish stock market in may, not because i thought europe would resolve because it hasn’t. we talked like it has and it hasn’t been resolved. i liked it because if there was going to be an inflationary fix you want the stuff that’s bombed out and the spanish stock market was bombed out. it was down at 6,000 and now it is 8,000. the market that has bombed out now and a little bit scary that it is so bombed out is the shanghai come’ over in china. with all of these world stock markets at local highs, almost the levels they broke down at precrisis, precredit crisis in the u.s. is where the s&p 500 is, pre or mid-banking crisis in europe and here you have some of these emerging markets like china, at the lows of many, many years. looking at the chinese market, something that’s worked for you, you mentioned stocks. let me ask you about apple. sure. as you know you were asked about apple and that stock has been i guess we can say a modest stock and i did something last week in terms of the at tricks what it created for portfolio managers, those that owned it and not owned it. what do you think about people buying appleck rnow? i think the obsession with apple is truly remarkable social phenomena. when you watch cnbc, everybody wants to talk about is apple going up today, down today, fixation, obsession, with apple. to me that means the stock is over believed and over bought. i have been sort of not a believer in owning apple stock but not out right. i am going to talk about for investors recommending stocks or stock markets is pair trades. looking at things and saying if we’re going to get inflationary fix, you want to own the spanish stock market. you want to own natural gas. you want to own agricultural commodities. short things like apple and the s&p, now, we have had the inflationary fix. apple is up about 15% from where i said i thought maybe it was a short versus a long natural gas and natural gas is up 40%. right. these are pair trades. when i talk about a pair trade, what ends up happening is someone looks at the one side of it and says that didn’t do well. you have to look at the total. when we come back later in the hour we’ll talk specifically about some other pair trades and i am going to ask jeffrey if i was somebody who had a nice 401(k) i am about to retire, what do i do with that money so that i can retire and create some income in the zero interest rate environment that seems that we will have forever. we’ll do that later in the hour when we come back. great stuff, gary, lighting up the wires and the web as you speak. thanks so much.