In his 30-year career as a fixed-income manager, Jeffrey Gundlach has never seen a forecast as solidified across every asset class as is the consensus for 2014. Investors expect stocks to outperform bonds, gold to be a “loser,” commodity prices to head lower, domestic markets to outperform non-U.S. markets and the dollar to be strong, according to Gundlach.
But many of those views are wrong, he believes.
Gundlach’s projections have earned him a reputation as a contrarian and successful investor. Gundlach, the founder and chief investment officer of Los Angeles-based Doubleline Capital, delivered his 2014 forecast in a conference call Jan. 14.
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The consensus is wrong in its assumption that interest rates will rise, according to Gundlach. “I don’t think that long-term bonds are going to do all that badly on the yield curve basis,” he said.
His talk was titled “The Year of the Horse: ‘Let the Race Begin!” and the slides from his presentation are available here.
Gundlach is recognized as a prescient forecaster. For example, he foresaw the collapse of the housing market leading up to the financial crisis. But his forecast last year did not turn out that well. A year ago, he said he would not be surprised if yields were lower at the end of 2013 than they were at the beginning. In mid-2013, he predicted the 10-year yield would be 1.7% by the end of the year. It yielded 3.04% instead. A year ago, he said U.S. equities offered a poor risk-return tradeoff and predicted that economic growth would be slow, volatility would be high and Chinese equities would perform well. None of those were accurate. However, he did correctly predict the poor performance of Treasury inflation-protected securities (TIPS), outperformance in the Japanese markets.
Let’s look at Gundlach’s forecast for Federal Reserve policy, various fixed-income asset sub-classes, stocks, commodities and other markets. I’ll conclude with what he said about Apple’s stock and the next big, disruptive technology.