Gundlach on Apple : I’m Not Positive or Negative

DoubleLine Capital’s Jeff Gundlach says the easy money on shorting Apple has already been made.

Bond King Sits With Halftime

Jeff Gundlach, DoubleLine Capital CEO & CIO, says anything with a yield on it will be more valuable going forward.

Transcript:

okay, welcome back to the halftime report live. we’re joined for the whole hour by lee cooperman of omega advisers. he’s the chairman aceo. our next guest has been called the king of bonds by barons. he manages $60 billion. he is the ceo and chief investment officer atble line capital. he join us live to share his top trade areas. jeff, it’s great to see you. welcome back to halftime. hey, scott, yeah, it’s goods to be here. i finally make it to the set and you high tail it out to vegas. i wish you were sitting next to us. but we’re grateful to have you nonetheless. give us your thought on where we are right now in the markets. i think everything kind of begins and ends with quantitative easing. it’s really at the centerpiece of everything. it creates a demand for obviously treasury bonds. it creates a low basis of comparison that is keeping the trend towards anything with a yield on it as being successful investment that will continue to i think appreciate in value and lead to even more of a conen drum for investors in terms of what they’re su povd to do going forward. people have been fighting it. at some point, it’s going to end probably badly. but it’s still going on. the fed is not going to stop. probably about the eighth inning. and it’s going to continue to trend in the same direction i think. yeah, we obviously spend a lot of time talking about equities on the network, on this program. we know where the markets are at these record highs. leapt’s switch the conversation to your wheelhouse, that being bonds, treasuries. warren buffett on cnbc exclusively last week called them a terrible investment. i want your reaction to that. depends what your time-frame is. if you want to talk about 10 or 15 years, i think we should all home bonds represent an underperforming investment for the next 10 or 15 years. because if they don’t, it means that no one is going to have any investment return of any significant at all. over the short

term, though, let’s say that’s six months to a year, maybe 18 months, bonds are notng to be a terrible investment. treasury bonds will be an okay to okay minus investment probably for that time period. just as they’ve been an okay investment or okay minus investment since we went into qe nonstop, which was the early part of october 2011. since then, the investment that everybody loves to hate, including i guess warren buffett, the tlt is a proxy, the etf of long-term treasuries, has actually returned about 3.5% annualized. what’s doing better and what bond aspects will have good returns are those that have some sort of a yield premium onhem that continues to be crowded you might think but the trend is in place where you can end up getting returns that are in the higher single digits from certain things in the bond market that represent credit risk and have a spread on them. so i think that’s going to continue for at least that year, 18 months to come. i mentioned to you, jeff, we have lee cooperman sitting next to us. i’d like to sort of engage you guys in a discussion about where you think treasuries will go from here. lee, i feel like you’re more on the side of what warren buffett thinks about bonds. i don’t think, if you listen carefully to jeff, i wouldn’t disagree. i’m not short bonds. and i could be short or long. but i just think it’s a bad bet. 50% of stocks today yield more than government bonds. you have to go back to 1958 to find a condition like that. that was the year of the yield reversal. prior to 1958, stocks yielded more than bonds. in 1958, there was a reprising of the market where individual, said return the stock. a dividend return plus the growth in dividend. okay. told, like i said, over half stock in the s&p are half in bonds. you talk one-seven, one-eight. pay 35% away in taxes. keep 60%. modest after tax return. there are so many stocks i could list out. you want income, take the debt management arkr. a little bit below book value. tcrd is a credit company. mezzanine lender yields 9%. i could find so many stocks out there that have returns much more attractive than treasuries. at the end of the day, the way a bond adjusts to inflation, assuming higher inflation in time, is it declines in price to keep the yield current. now, historically, the 10-year u.s. government bond has been in line with gdp. if we took a shot and said the next nine years, let’s say 2%, maybe 3% in the economy. that’s not heroic. frankly, if you get much less than that, you get social issues in the country. worldwide, there’s $74 million unemployed youth. we’ve got to get the economy growing. we’ll wind up with social unrest. you you say we have real growth of 2% to 3% that would mean nominal gdp would grow somewhere near 4%. which would mean in three years time, not in a year, in three years time, somewhere in the arrange of 4%, 5, 6. if you go there, you’ve lost some of your money. in my perspective, it’s just too dangerous. i’ve said that on tv before. i appreciate jeff’s view. his record’s fabulous. i don’t think he’s wrong for the next 12 or 18 months. i just think it’s just too dangerous. because if you’re wrong in the timing, you’re never going to get the hell out. because the coupon cushion is so low. but basically i just think it’s like walking under a steam roll to pick up a dime for me to buy a government bond. lee makes a lot of good points. the first thing he talked about was 1958, kind of the reversal. one thing that’s interesting is prior to that period bond yields stayed very low. sort of in the range of where they are today for a very long time. so that isn’t inconsistent with where we are to the other point he makes that i agree with is that if interest rates rise you’re going to lose money on bonds. one thing i think investors underappreciate, this is an important point, if interest rates really do go up to 5% or old school 6% level on a 10-year treasury, there are an awful lot of investments that are going to be in trouble. so many people are moving away from bond investments for obvious reasons like low yields and some of the things that low said that i do agree with. they’re going into things that is kind of like going from the frying pan into the fire. a lot of financial advisers asked me about things like mlps. pay a decent yield on them. they say they like that better than bond because they’re afraid interest rates are going to rise. if interest rates rise up to 5% on the 10-year treasury, you are going to get killeded in a lot of these typed of vehicles because they have a lot of leverage in them and a great deal of risk. similarly, some people say it’s a good thing to speculate on housing because interest rates are low and they might go up sharply fairly soon. if that’s the case, you better be committed to living in the house. because if mortgage rates go from 3% today to 7%, because of rising interest rates, the affordability

of housing is going to exchange extraordinarily substantially to the downside. and so a lot of things that people don’t understand is quantitative easing is responsible for these market disportions. it’s likely to keep them in place. it’s created a set up that isn’t just bond investors or bond owns picking up nickels in front of steamrollers. we have to be very careful about what that means in our portfolios. all right. i just would like to add one point, and i understand — statistician, practical guy. but from 1960 to date, the s&p multiple averaged 15 times. in that same period when the s&p multiple averaged 15 times, the 10-year u.s. government averaged 6.67. here we are, 10-year government i think i’m seeing on your screen 1.8 and the mutiple in line with historical. so either pricing in some increase in interest rates or slower long-term economic growth. the bullish element to that is it’s pricing it in. so i’d rather take a chance in an equity than i would in — and so i understand jeff’s point. i also make the point that over time inflation has been a pose tim for stocks negative for bonds. because inflation company’s costs gets incorporated into selling prices. works its way into higher level of earnings. inflation becomes a problem for the market when the central bank is moving to curb the inflation. it is tantamount to curving growth. right now, we have a central bank that tells you every day, i want more growth, i want more inflation. i want to keep interest rates low till i get it. so i think equities pay better than fixed income. that last point is a good point, lee.

QE’s Effects in 8th Inning: Jeff Gundlach

Everything begins and ends with quantitative easing, DoubleLine Capital’s Jeff Gundlach says.

Transcript:

give us your thought on where we are right now in the markets. i think everything kind of begins and ends with quantitative easing. it’s really at the centerpiece of everything. it creates a demand for obviously treasury bonds. it creates a low basis of comparison that is keeping the trend towards anything with a yield on it as being successful investment that will continue to i think appreciate in value and lead to even more of a conen drum for investors in terms of what they’re su povd to do going forward. people have been fighting it. at some point, it’s going to end probably badly. but it’s still going on. the fed is not going to stop. probably about the eighth inning. and it’s going to continue to trend in the same direction i think. yeah, we obviously spend a lot of time talking about equities on the network, on this program. we know where the markets are at these record highs. leapt’s switch the conversation to your wheelhouse, that being bonds, treasuries. warren buffett on cnbc exclusively last week called them a terrible investment. i want your reaction to that. depends what your time-frame is. if you want to talk about 10 or 15 years, i think we should all home bonds represent an underperforming investment for the next 10 or 15 years. because if they don’t, it means that no one is going to have any investment return of any significant at all. over the short term, though, let’s say that’s six months to a year, maybe 18 months, bonds are notng to be a terrible investment. treasury bonds will be an okay to okay minus investment probably for that time period. just as they’ve been an okay investment or okay minus investment since we went into qe nonstop, which was the early part of october 2011. since then, the investment that everybody loves to hate, including i guess warren buffett, the tlt is a proxy, the etf of long-term treasuries, has actually returned about 3.5% annualized.

what’s doing better and what bond aspects will have good returns are those that have some sort of a yield premium onhem that continues to be crowded you might think but the trend is in place where you can end up getting returns that are in the higher single digits from certain things in the bond market that represent credit risk and have a spread on them. so i think that’s going to continue for at least that year, 18 months to come.