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.
