Jeffrey Gundlach was the only prominent financial professional to predict Donald Trump’s victory. Yesterday, he revealed how he made that call.
Gundlach is the founder and chief investment officer of Los Angeles-based DoubleLine Capital. He spoke to investors via a conference call on November 15. Slides from that presentation are available here. The focus of his talk was DoubleLine’s asset-allocation mutual funds, the Core Fixed Income Fund (DBLFX) and the Flexible Income Fund (DFLEX).
Jeffrey Gundlach predicted Trump’s victory in early January, before the primaries started. He said that he has predicted every presidential winner since 1972 – 12 in a row, but that this call was the first before primaries began.
How did he know Trump would win and stay convinced of that prediction?
It was “pretty simple,” Gundlach said. He identified which candidates were the worst. He does not look at the ideology of the nation or the candidates’ rhetorical strengths, he said. He figures out which candidates have the most glaring weaknesses.
Hillary Clinton was a uniquely bad candidate, he said, because of her failure to beat President Obama in 2008, followed by her problems with the email server and a “basic lack of honesty.”
Why did Trump win? Jeffrey Gundlach said that people felt abandoned by the economy, with the median worker having suffered low or negative wage growth since 1973. This came while the top 5% realized a 51% real increase in their purchasing power. He said that the corresponding increase for the top .01% was so large it would have “blown the scale” of his graph.
“The ownership of wealth has shifted,” Gundlach said. “But those trends are about to reverse.” Gundlach said that wealth inequality will decrease.
A big contributor to Clinton’s defeat was the release of the Obamacare data on November 1, Gundlach said, which showed a “massive” increase in premiums. He said that those responsible for scheduling that release must have expected a great piece of news, not the negative “shock” it actually delivered.
Gundlach commented on what the election result means for the markets and specifically how investors should position their bond portfolios.
The markets are confused
“The markets remain completely confused as to what will be the trend direction from the election,” he said.
As evidence of that confusion, he said he was struck by the many pundits who called for a crash and global depression following Trump’s victory; many of them, Gundlach said, now claim Trump is great for stocks.
Trump does not have a “magic wand” to offer instantaneous improvement for the economy, Gundlach said. Investors should expect a bumpy ride while Trump strives to deliver on his promises, he said.
Jeffrey Gundlach has been warning against a rise in interest rates. He turned negative in July, when the 10-year bond was yielding 1.35%; it is now just over 2%.
By Robert Huebscher, read the full article here.