Well-known investor Jeffrey Gundlach is preparing to address a number of issues, including the economy, the markets and his outlook for the rest of the year. Jeffrey Gundlach is the founder of Doubleline Capital. Last year he was one of Bloomberg Market’s 50 Most Influential People. He’s recognized as an expert in bond and fixed income investments.
The webcast will be starting shortly, and we will be blogging it live right here. Gundlach will likely be focusing on the financial crisis around the world, including what’s happening to the U.S., European, Japanese and possibly Chinese markets and how they are each affecting each other. He said the webcast was arranged quickly and focused on how something has changed in May, especially around the fall of the Japanese markets and how 2013 is beginning to devolve into the Year of the Snake, according to the Chinese calendar.
He expressed concerns about investors who were concerned about treasuries because what they were fleeing from would be one of the best performing assets.
4:18 ET- Sell off in bonds globally, we’re on the low end in CPI, but he switched to the Personal Consumption Expenditure Core Price Index, which is also on a very low. He sees no message of inflation in the market and also looked at gold, which he said is “like death.” He believes it’s too pat and everyone believes it will go to $2,000, but gold looks so terrible that maybe they’re right. He gave up on metals recently.
4:20 ET – Where is the inflation? In the CRB Commodity Index, which is stable, but there isn’t much money being made in commodities. No inflation anywhere, nothing to do with inflation. He divided commodities into five categories. Gold is doing the worst of all five, and the U.S. dollar is strengthening. He also looked at global equity markets, which are being led by the Japanese markets. The lowest is the Shanghai index.
4:23 ET – Looked at the S&P 500 compared to the MSCI EM Index. There’s a huge outperformance of the S&P 500, accelerating since mid-May, emerging markets are especially weak. He believes investors are so upset because they’re not just losing money in treasuries and the S&P 500, but they’re getting crushed in other markets, especially emerging markets. Jeffrey Gundlach thinks this will have a short term correction and that the emerging markets will outperform the S&P in the weeks ahead.
4:26 ET – Shanghai is one of the biggest problems, putting in a new low a day ago, so it doesn’t seem like there’s much global growth. China Interbank borrowing rate was stable in 2010, spiking once in a while but in June it lost control, indicative of a world where Chinese banks don’t feel comfortable lending to each other, which is a sign of economic trouble. The rate is back down, but not comfortably so. It would be better if it would go down some more. He doesn’t think July will be like June and that stability will be increasing.
4:28 ET – Employment to population ratio in the U.S. is still flat, so it’s hard to make the case that there’s economic growth. He said Ben Bernanke has been confusing lately because they were reducing forecasts on one side, and then on the other side, he said that reducing QE would be dependent on data. He would think the Fed would be increasing QE because it is cutting forecasts. He also doesn’t think the Fed’s tapering should be as much of a problem.
4:30 ET – He doesn’t think treasuries have been such a big problem but that the other markets were causing big short term losses. One reason interest rates might not increase because of economic impact. Mortgage rate was down near 3 ¼ percent, but now mortgage rates are rising, by 175 basis points in some cases. Home prices are increasing, up 20 percent in some places year over year. Jeffrey Gundlach doesn’t understand why people say it will be OK even when both rates and home prices are going up. He doesn’t think interest rates will go up.
4:33 ET – Treasury rates rose almost 100 basis points since April. April 30 – low in June 24, bond index was down. Treasury component was best performing sector in the U.S. Treasuries down 3.1 percent, mortgage index almost the same. Corporate bonds were down in the same time frame. Many funds underperformed, biggest one is down.
4:35 ET – So treasuries are the tail and not the dog. Sell-off in treasuries have steepened yields. He thinks the worst is over. The high yield sector was a trouble point, it was falling and accelerating downward, but then starting on Fed day, it dropped a lot again. Fell 7.7 percent, so total return on junk bonds was much worse than any other investment grade strategy. There’s a rebound showing that the liquidation cycle seems to have run its course. Today it’s almost back up in two or three short days to where it was around June 4.
4:38 ET – ABX Index dropped 8 percent through June. It hasn’t rallied much. What’s wrong with it is that they’re being sold, this is a liquidation cycle. Jeffrey Gundlach says it’s absurd to think any fixed income class will hold its value. Investment Grade ETF is down 8.9 percent, greatly underperforming treasuries. Out of the frying pan and into the fire if you sold treasuries and went elsewhere.
4:40 ET – Advises investors not to buy TIPS because you think you’re protecting from an interest rate rise, but bond market has been anticipating economic changes. Inflation is stable and interest rates are rising. Investors buy TIPS fearing bonds but TIPS drop the most. Jeffrey Gundlach thinks TIPs are the worst asset class in the U.S. because they have the highest duration.
4:42 ET – Mortgage REITs also dropped a lot from April to June. It rallied yesterday, but it was down today, so there hasn’t been much of a rebound in this asset class. He thinks a liquidation cycle started with big players selling followed by other investors. People have found themselves overinvested and in a riskier position than they were before Ben Bernanke spoke. Stock market is rebounding, S&P 500 back up.
Jeffrey Gundlach went to questions and answers.