Posts filed under “Fixed Income/Interest Rates”

Deck + Notes from DoubleLine’s Jeff Gundlach

6-27-13 JEG Market Update by zerohedge



Last week, Jeffrey Gundlach of DoubleLine funds did a webcast, discussing his most recent slide deck. This followed a month of volatility and rising rates. My friend Laura sent me a full rundown of notes from someone a friend of hers who sat in on the webcast (Laura, please forward that name!).

This is a follow up to his last webcast a month ago (notes from that webcast follow these notes. The full presentation is attached.


Gundlach believes the liquidation and massive volatility is most likely over, and that creates some opportunity in specific sectors: EM stocks, closed end muni funds, long end UST and HY corporate bonds. Some of those sectors now have a good value proposition due to the rate rise and spread widening. He still likes the NKY up to 14,000 and is still short the yen.

1. Interest rose more than he expected.

2. Recent interest rate rise has nothing to do with inflation…CPI and PCE both well below Fed’s target. The PCE (Fed’s preferred target) is at half century low.

3. Gold is weak, partially as a loss of inflation hedge. Consensus is gold is going to $1000. Pivot point has been taken out. Chart is ugly.

4. CRB index is eerily stable at low level…feels it could fall below “shelf” and fall to 400. Partly because China is not growing as people think it is.

5. Incomes are stagnant, China is slowing, no global growth…this selloff has nothing to do with inflation

6. Dollar is strengthening…also deflationary for US

7. Global equity markets have been dropping led by Japan and Shanghai

8. NKY finding support at 12,500…thinks it will go back to 14,000

9. Enormous underperformance of EM equities…causing stress among investors

10. Liquidation has seemed to have ended. Expecting things like EM equities to correct…this is a good place for a contrarian play for next few weeks.

11. Brazil is a concern due to social unrest…but a basket of EM equities looks attractive.

12. Shanghai is ugly…brand new low…this along with commodity prices are saying there is no growth in China and the world.

13. Bank of China is shadow tightening…Shibor rates saying Chinese banks not comfortable lending to each other…a concern for Chinese banking system

14. Expecting stability in July to come back

15. Labor market still stressed…employment to population ratio is not recovering along with other job metrics…difficult to make case there is either economic growth or inflation in the pipeline.

16. Fed talking out of both sides of mouth…how does he reduce his GDP and inflation expectations…and talk about reducing QE? Said Fed is basically funding the budget deficit. So tapering is OK if deficit goes down, but Fed not communicating that properly.

17. Higher rates hurt leveraged markets…EM, HY, MBS, muni, etc…margin calls breed selling breeds more deleveraging breeds concern about credit which breeds more selling…this is what really happened past month. Some markets really gave investors big losses which caused concern (EM, MBS, etc), and not the generic rise in rates.

18. Housing market is facing major headwinds now due to major increase in mortgage rates, on top of higher prices. Change in affordability has been huge past month. This will hold back economy for near term.

19. The past 6 weeks, UST was best performer out of Lehman Agg index…in a relative sense, of course. Corporate bonds and MBS fell much more as spreads blew out due to deleveraging. So you can’t say UST are the problem…UST is the tail, not the dog.

20. Yield curve seems too steep now relative to Fed policy. He thinks the worse is over for UST.

21. HY was a big trouble point with leverage money getting stopped out. HY index dropped 7% over past 6 periods. The liquidation cycle seems to have run its course and market has come back. The worse seems to be over for HY for now.

22. HG also dramatically underperformed UST during past 6 weeks.

23. TIPS not protecting you from inflation based on market moves relative to time frame of inflation. Doesn’t like them. Not as against them now at these levels though. But he does not see inflation coming any time soon. The markets in June are telling you “deflation”.

24. Mortgage REITs…NLY as proxy…seeing some but not a lot of rebound.

25. Investors were lulled to sleep by Ben for two years…now he changes his tune to remove leverage…and investors found themselves over-invested. So people have sold to de-risk and get back to more comfortable risk levels.

26. He likes closed end muni funds here…negative price actions has caused massive discounts in the 6-8% range…oversold.

27. HY is now a good value proposition and value buying will stop the route

28. Thinks QE will continue until we see negative consequences. One was too much leverage in the system. If we are done with the liquidation cycle, then Ben did a decent job.

29. If you sell any bond funds here for fear of higher rates, you should keep cash…for if bonds go down again, everything will go down.

30. Thinks will see yields lower at end of year than what we see now…and by a substantial amount to capture decent profits

31. Gold has less than 20% downside from here, and up to 50% upside…but will probably go down first…but wouldn’t bother selling now if you have ridden it all the way down…starting to buy gold now if you have none makes sense.

32. He thinks people have foolishly redeemed bond funds. Thinks there is good value there now.

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