Bond King Jeffrey Gundlach of DoubleLine Capital explains why he thinks it doesn’t pay for investors looking for yield to leave bonds and buy dividend stocks or REITs. Jeffrey Gundlach was on CNBC today, below are the video clips and transcript.
Don’t Make These Bond Mistakes: Jeffrey Gundlach
Tiger Legatus Master Fund was up 0.1% net for the second quarter, compared to the MSCI World Index's 7.9% return and the S&P 500's 8.5% gain. For the first half of the year, Tiger Legatus is up 9%, while the MSCI World Index has gained 13.3%, and the S&P has returned 15.3%. Q2 2021 hedge Read More
welcome back to the half. live today from post 9 at the new york stock exchange on this big fed day. we are back talking about the fed, interest rates, and stocks with doubleline capital ceo jeff gundlach. thanks for staying with us. i know you’re worried right now about some of the moves that bond investors have been making of late as they try and look for yield. what exactly are you worried about? well, the basic viewpoint is that the financial markets, and certainly bond alternatives, are all basically balancing somewhat precariously on a very narrowbase, which is 0% rate policy. everybody is trying to find ways of getting yield and find ways of avoiding what they think is a lousy asset class, and they’re wrong. bonds are not a lousy assetclass as we talked about in the last segment. but what people are doing is fleeing from bonds so far in the last several weeks into other asset classes like, you know, dividend-paying stocks earlier this year, into mortgage reits, into master partnerships.and as we talked about over a month ago when i joined you from the salt conference when i was at the new york stock exchange, this is going from the fire pan into the fire. it’s a fundamental mistake. the basic premise they’re operating under is, hey, i don’t want to own bonds because i think the yields are too low, and i think that that means they must rise soon, an i’m going to lose money in bonds. what they’re doing is fleeing into other asset classes like dividend-paying stocks, mortgage reits and the like. if you look at the bloodless verdict of the market, which is the price action of the past month or so or two months or so, while bonds have had zero or modestly negative returns, many of the so-called bond alternatives have had horrible returns. no doubt. look at mortgage reits. these are done some of them 20%. look at dividend paying stockswhich are underperforming. look at mlps. the problem is all of these things are balanced precariously on the low interest rate premise and if the low interest rate premise is incorrect, thesethings are going to fall more than bonds, which has been thetale of the tape over the past month or two. so don’t think that fleeing from bonds into these yield alternatives is some sort of low volatility, no risk proposition should you think that bondyields might rise. so that’s the issue. bonds have fallen less than most asset classes with the interest rate rise. that’s what i mean by out of the frying pan and into the fire. no doubt. don’t you think the price action you mentioned yourself over the last several weeks to a month that’s been so bad has forced people or prodded them to get out of some of those things that maybe they thought were good? that’s the first question. the second is how — yes. they have, right? it’s just a fact. they’ve seen reits fall, utilities fall, mlps fall. and the reason they fall so much, scott, is that people buy them naively. they think that they’re somehow not going to suffer from negative price action shouldthere be a modest yield rise, and yet when they start to fall, they say, oh, my goodness, i actually bought something that has downside potential. when it starts to fall, they panic and start to get out. that’s why these kind of peripheral bond surrogates end up being the worst possible investment if the premise thatyou’re using to buy them is actually right, that interest rates might rise modestly. investors have to be sensible about what exactly are the fundamentals underneath these so-called bond alternatives, and the truth of the matter is they’re actually more risky than the thing that they feel like they’re fleeing from. so that’s the point i have been trying to make for really all year and now people are feeling it in their pocketbook with these negative returns in so many of the asset classes that they thought would be some way of protecting themselves. let me — turned out to be a modest decline in bond prices. let me ask you for the folksthat are watching, probably everybody out there who wants tohave a diversified portfolio, how do you convince somebody tobuy a bond fund after they opened their statement and saw what happened in may? well, not all — first of all, i hope they open other statements, too, and notice that their brazilian stocks aren’t doing very well and their mexican pesos aren’t doing verywell. bonds are actually doing on a relative basis fairly okay.certainly my bond fund has done more than okay with a positiverate of return that’s decent so far year-to-date. so bonds aren’t that bad. now, the thing that you’re bringing up is interestingbecause it’s going to get even more interesting. one of the things i have been talking about for the past several months is that you wait and see what happens july 31st because come july 31st you will actually have bond statements that show negative returns possibly, depending upon what happens between now and then, but under the base case if things stay where they are, possibly bond fund statements will show negative one-year returns come july 31st because, as i talked about publicly in the middle of the july last year, i think that was the low in treasury bond yields at 1.38% on the ten-year. i don’t think we’ll see that again. so what will happen — we have to ask ourselves when people open their statements and they don’t just see a one-month return that has a negative sign in front of it, but they see a one-year return that has a negative sign in front of it. then what are they going to think because many investorsnaive lie believe that the one-year return of a bond fund is it’s forward looking yield. thankfully my total return bond fund has a significantly positive rate of return from july 31st of last year, but an index fund or a total bond market type of fund will have anegative return. it will be very interesting to see what investors do at that point in time. and july 31st is not very far away. so stay tuned on that one. i think that’s going to be a very interesting moment in time to see what really happens withpeople’s asset allocation, bonds, stock, commodity, currency and the lake. maybe you should clear your calendar early and come back july 31st. maybe the first week of august is the way to do it. you got to wait for the mail to show up on the third or fourth business day. check your schedule. one more question, steve weiss. i agree with you completely on yield equities. i agree with you on index managed bond funds. so you have to be active. but in fairness if you see yields back up say from 2% to 2.5%, that may not sound like much, but that’s also a majorprinciple loss, isn’t it? it depends on the duration of your bond fund. if you’re running a lower duration like we do in our totalreturn fund, you would only lose about a percent or two and youhave income against that, but, yeah, i don’t think — but, again, just to repeat what we said in the first segment, i really do not think you’re going to see 2.50% on the ten-year anytime in 2013. all right. jeff. it’s been great having you. we’ll see what happens a couple hours from now, what bernanke has to say, what the news conference delivers and we’ll all be reacting to it.you have another webcast next week on a fund you’re opening to the public. it’s your floating rate fund and if you want to find out more, make sure to check out that webcast. that’s next tuesday www.doubleline.com. jeff gunt lack, thanks again. we’ll talk to you soon. thanks, judge. great to be with you. you got it, man.
Gundlach: Bet on a ‘Most Hated Asset’
The Fed will likely signal a reduction of asset purchases, making one investment the best bet in the near future, DoubleLine Capital’s Jeff Gundlach says.
what do you expect is going to happen later today? well, you know, why guess in a certain sense? but since you have asked me, i will guess. i think that the fed is going to reduce their bond purchases later this year because, as you know, my theory has been that what’s really going on is the fed is financing the budget deficit, and the budget deficit is smaller than it was a year ago, and, therefore, the need for financing is less, and so bond purchases should be less. so they’ll probably be some language about a wind down, reduction of bond purchases later this year. and i think the market expectsthat to happen. so really what’s happened in the markets is interesting in the past month because nobody is making any money sort of anywhere anymore. when we were talking at mystrategy team about a month ago, we were saying what should we buy? what should we invest in? i made the comment i can’t find anything that i think is going to be a moneymaker, and when we look aroun the world, that’s been the case. there’s really nobody making any money in anything in the past month.stocks are down, not much in the u.s., but they’re down hard in alot of emerging markets and in japan. gold looks like it’s going to break down to a new low. bonds are going sideways. no one is making any money anywhere, and i think that’s because people think that the conviction of central banks to continue the amount of monetary stimulus through bond purchases is less.so let me ask you this. that’s going to happen again today. we see yields continuing to rise. we’re above 2.20% today. why are rates going up? is it a recognition the economy might be better than we think? are we starting to work in the taper? why are rates going up? rates aren’t going up, scott. they sideways. they went up earlier and they went up to about 2.30% on the ten-year which we talked about a few weeks ago and since then they’re just bouncing around. rates really aren’t rising. they’re going sideways, and i think actually rates are going to start falling. i think the place, the one place that you’re likely to make money in the next several weeks, maybe couple of months, is actually,believe it or not, the most hated asset class on the planet, long-term u.s. government bonds. that’s what i think is going to be the most successful investment, and looking at to the reach that conclusion is the fact that there is no inflation anywhere. there’s no sign of inflation. when you look at the commodity market in particular, it really looks bad. i mean, look at where copper is.look at where gold is. look at where gold is in foreigncurrencies. i mean, it’s hitting new lows in terms of the japanese yen. it’s hitting new lows in terms of the euro. it looks like it’s about to hit new lows even in terms of the dollar, which has been a weak currency. so gold should be going up indollar terms. i think that what we’re looking at is a bond market rally that’s going to start fairly quickly.
Jeffrey Gundlach: Bonds Will Rally; Gold Will Hit New Low
Men’s Wearhouse founder George Zimmer defends his position at the company that fired him, reports CNBC’s Josh Lipton. Jeffrey Gundlach, DoubleLine Capital, explains why the Fed’s tapering program makes him nervous.
what happens to shares now with dish bowing out of the biddingolden eye, the pressure metal is in the spotlight as taper talk looms. first, our top story is the fed and the rally. the biggest week of the year for the maall coming dto this. what will fed chairman ben bernanke say two hours from now and what will it all mean for stocks, for bonds, and everything else in between.elp guide us through this big day, we’re joined by jeffreygundlach ceo of doubleline capital, $60 billion undermanagement, and the king of stocks, billionaire lee cooperman from omega adviser. the traders are here, steve weiss, pete and jon najarian. pete, to you first, what do you want to hear today? we want to know something about the wind down.everybody has been focused on the fed. obviously mr. bernanke will be in front of us. we want to know the timing, what he sees, what his projections are. i will be watching the financials on how they react. breaking news on this busy day. let’s go back to headquarters. josh lipton, what do you have? the news is morning, men’s warehouse ousting george zimmer, the man who founded that company some 40 years ago. george zimmer now out with a statement in a first to cnbc. st got it. let me read it to you. zimmer saying over the last 40 years i have built men’swarehouse into the multibillion dollar company with amazingemployees and loyal customers who value the products andservice they receive at men’s warehouse. over the past several months i have experience — expressed my concerns to the board about the direction the company is currently heading.instead of fostering the kind of dialogue in the board room thathas contributed to our success, the board has decided to silence my concerns through termi as an executive officer. that a statement from george zimmer. thank you so much. one more comment before we get to gundlach, that being steveweiss. what do you expect? what do you want to hear? i expect there to be a lot of volatility between the release and the press conference. it’s going to be dovish i’m almost sure of that, however, it’s a good time for the market to pause. ja let’s get to jeffrey gundlach, the ceo of doubleline capital. thank you for joining us again. it’s good to see you on what is such a big day for the markets. jo good to be with scott. what do you expect is going to happen later today? well, you know, why guess in a certain sense? but since you have asked me, i will guess. i think that the fed is going to reduce their bond purchases later this year because, as you know, my theory has been that what’s really going on is the fed is financing the budget deficit, and the budget deficit is smaller than it was a year ago, and, therefore, the need for financing is less, and so bond purchases should be less. so they’ll probably be some language about a wind down, reduction of bond purchases later this year. and i think the market expects that to happen. so really what’s happened in the markets is interesting in the past month because nobody ismaking any money sort of anywhere anymore. when we were talking at my strategy team about a month ago, we were saying what should we buy? what should we invest in? i made the comment i can’t find anything that i think is going to be a moneymaker, and when we look aroun the world, that’s been the case. there’s really nobody making any money in anything in the past month. stocks are down, not much in the u.s., but they’re down hard in a lot of emerging markets and in japan.gold looks like it’s going to break down to a new low. bonds are going sideways. no one is making any money anywhere, and i think that’s because people think that the conviction of central banks to continue the amount of monetary stimulus through bond purchases is less. so let me ask you this. that’s going to happen again today. we see yields continuing to rise. we’re above 2.20% today. why are rates going up? is it a recognition the economy might be better than we think? are we starting to work in the taper? why are rates going up? rates aren’t going up, scott. they sideways. they went up earlier and they went up to about 2.30% on the ten-year which we talked about a few weeks ago and since then they’re just bouncing around. rates really aren’t rising. they’re going sideways, and i think actually rates are going to start falling. i think the place, the one placethat you’re likely to make money in the next several weeks, maybe couple of months, is actually, believe it or not, the mosthated asset class on the planet, long-term u.s. government bonds. that’s what i think is going to be the most successfulinvestment, and looking at to the reach that conclusion is thefact that there is no inflation anywhere. there’s no sign of inflation. when you look at the commodity market in particular, it really looks bad. i mean, look at where copper is. look at where gold is. look at where gold is in foreign currencies. i mean, it’s hitting new lows in terms of the japanese yen. it’s hitting new lows in terms of the euro. it looks like it’s about to hit new lows even in terms of the dollar, which has been a weak currency. so gold should be going up in dollar terms. i think that what we’re looking at is a bond market rally that’s going to start fairly quickly. steve weiss. jeff, how are you doing? thabs for coming on. hey, steve. here is what i mean by dovish. i mean that taking $20 billion or $25 billion out of the stimulus has already been jaw boned into the market and that they’ll push off, that they’ll talk about it at the press conference and then go outfurther in terms of any further cutting back on stimulus. if that’s the case, number one, how do you handicap that probability? i know it’s sort of ridiculous with two hours to go to guess, but how do you handicap that and would that fit into your definition of dovish or would that be hawkish relative to bonds? i think that the fed is fundamentally dovish, and with ben bernanke now pretty clearly signaling he’s not going to be the fed chairman in six months’ time, you’re going to get yet more dovish fed chairman i think or chairwoman is what’s likely to be, and so i think tapering, which is — i hate that word ring, by theway. i think it should just be called reducing. there’s something about the word tapering that bothers me. it implies some sort omniscience and some sort of ability to do things perfectly which is really what’s making me nervous about kind of the world today is this idea that the fed is omniscient and can do things perfectly and the reason i agree with you about dovish is recently ben bernanke said, yes, we may reduce bond purchases, but after that we may increase bond purchases.we’re going to sculpt this bond purchase program in such a waythat we’re going to make the economy perfect. when economic data is a little soft, we’ll increase bond purchases. that’s dovish for sure. when economic data is strong, we’re going to reduce bond purchases, and we’re going to make the world a perfect place of stability and comfort, and i just don’t think that’s the waythe world works. it bothers me a lot that we have central planning in the true bubble of what’s in the world today of bubbles is central planning and central banking, and what we have is this idea that we can get away from these extraordinary and experimental policies with, as ben bernanke put it on the 60 minutes program some time ago, 100% perfection. that really bothers me coming from human beings which we all know all of us are far from perfect and there’s no way that this is going to be able to be accomplished. so this is, i think, why we’restarting to see nonprogress in financial markets is there’s sort of a stepping back from the idea, i think the belief, that all this is going to happen to perfectly. yes, i think tapering bondpurchases is going to happen. it’s going to happen because thebudget deficit is smaller and then when economic data getsweaker, which it probably will at some point, then they’re going to talk about increasing bond purchases. so this program is not going away. it’s just being sculpted in a way that has far too much confidence, in my opinion, in terms of its success andefficacy. i want to kick this around with the traders on the dervegand get you involved as well. i want to put my guys on the spot but i want to have a spirited debate about this idea that treasuries are going to rally in jeff’s words fairly quickly. guys, do you think they are? do you agree, disagree is. i agree with jeff. i believe that’s going to be the case. i think that what we’ve had here, folks, is a situation where people were trying to getahead of this fed and the taper if, indeed, that’s what’s going to be part of the statement today. so i do think that you’re going to see bonds perhaps test down to a 1.70% yield or thereabouts,scott. so that would be a rally out of the bonds and a drop in yields. pete? i agree. i think jeff is spot on. i thirybody has beentrying to get in front of whatever the fed is going to say and i think the presunks right now is he’s right. the fed is going to start giving us this information that we’ve been waiting to get. what does that mean for the stock market, steve? i think that it’s disjointed from the stock market because you can have both moving. juke have both go up, bonds and stocks go up. jeff, do you think that can continue? can you have stocks and bondsgoing up at the same time? yes, you can have stocks andbonds going up at the same time. you know, it’s been the casethat for now quite a few years that bonds and stocks have beennegatively correlated, but more recently, and i mean veryrecently, that’s changed a little bit. you will notice that when bond yields rise say to 2.20% or higher, it seems that stocksreally get indigestion. it seems that everything gets indigestion when bond yields rise above 2.20%. that’s why i have been saying that i think bond yields aren’t going to rise much, if at all,above 2.30% or 2.35% which they basically kissed 2.30% lastweek. so initially i think if bond yields fall, i think it’s positive for stocks. initially. which means say they move down to 2% or so on bonds, i don’t think stocks have a problem with that. i think stocks like that. all right. we’re going to take a quick break. jeff is going to stick around.