Jeffrey Gundlach: DoubleLine Webcast Recap

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On March 10, 2015, Chief Executive Officer and Chief Investment Officer Jeffrey Gundlach held a webcast discussing the DoubleLine Total Return Bond Fund (DBLTX/DLTNX) titled “Blockhead“, below is a summary via DoubleLine

Jeffrey Gundlach: Central Bank Policy

  • European Central Bank (ECB)
    • Sovereign net bond issuance has been negative as a result of ECB purchases
    • It’s difficult to make the case for rising yields in Europe given the negative net supply due to ECB repurchase program or quantitative easing (QE)
    • Mr. Gundlach believes the 10-year U.S. Treasury (UST) is more likely to dip below 2% again than reach 3% during 2015
    • Approximately 70% of European companies have higher yields on their stock than their corporate debt

Jeffrey Gundlach: The Federal Reserve (“Fed”) Policy

  • The Fed
    • In prior Fed tightening cycles, hourly earnings tended to rise with higher rates
    • Mr. Gundlach believes the Fed will want to raise rates if is employment data remains positive and oil stabilizes
  • Inflation
    • Inflation as measured by the Pricestats Index year-over-year (YoY) is already negative indicating deflation
    • U.S. Core Consumer Prince Index (CPI) (using Eurozone definition) is also negative
    • Mr. Gundlach does not believe inflation is a problem now but may be one several years down the road
    • Inflation outlook today is eerily similar to that of 1939; read Jim Grant’s latest issue of Interest Rate Observer
  • U.S. Dollar (USD) & Rates
    • Speculative positioning is now 60% net long the USD
    • – Mr. Gundlach believes the USD could strengthen further
    • Peak maturities in Fed-held Treasuries come due 2018-2019
    • High Yield and Bank Loan also mature around the same time, 2018-2022
    • Mr. Gundlach believes the Fed may follow the path of other central banks, which have hiked rates and subsequently lowered them

Jeffrey Gundlach: Demographics

  • Japan, China and Europe have population-age distributions that have continued to widen as citizens get older
  • The wider population-age distribution is not a problem now but may be down the road

Jeffrey Gundlach: The Bloodless Verdict of the Market

  • Year-to-Date (YTD) Winners:
    • Convertible bonds (V0S0), High Yield bonds (J0A0) and Investment Grade Corporate bonds (C0A0)
    • By credit quality: CCC-rated (JOA3) and BB-rated (JOA1)
  • YTD Losers:
    • Treasury Inflation-Protected Securities (TIPS) and local currency Emerging Markets (EM)
  • Commodities
    • Gold is holding up pretty well against a USD that has appreciated by 20%
    • Mr. Gundlach believes gold will be supported by negative yields globally and could trade up to $1,400 during 2015
  • Equities
    • Historically, the largest cap-weighted stock in the S&P 500 has underperformed the index as a whole
    • Stock buybacks have been a huge source of demand in the equity market
    • Growth (as measured by the Russell 1000 Growth) outperforming Value (as measured by the Russell 1000 Value)
    • – Mr. Gundlach believes earnings of value companies may be impacted by the stronger USD
    • Since 2012 the S&P 500 has continued to outperform:
    • – European equities as measured by the MSCI EAFE Index
    • – EM equities as measured by the MSCI Emerging Markets Index
    • Mr. Gundlach believes the Indian stock market (BSE) is a good long-term investment (20+ years)
  • Interest Rates
    • 2-year UST yields have risen for nearly 4 straight years
    • 30-year UST yields may have put in a low during January and have had marginal price action since

See full PDF below.

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