Gundlach Talks, Sense on Cents Listens

A month ago, Investment News laid out 10 Spot On Predictions by Mr. Gundlach. His uncanny calls on specific market sectors and timing included:

Treasurys Will Rally, April 2011
Go long Japan, short the yen, December 2012
Natural gas is the new gold, April 2012
Bullish on equities, March 2009
Told people to get out of Apple's stock
Warned investors on sub-prime market, April 2007

Heck, Gundlach even provided a tip to police that helped them solve an art heist from his home. So what is this savant thinking now about the bond bubble, inflation, interest rates, QE, and real estate?

Let's navigate and get his take from coverage of his remarks at an industry conference held just the other day. Investment News' Dan Jamieson once again does a great job in providing the following insights:

Don't let those low rates or fear of a bond bubble scare you off — own some long-dated U.S. Treasury bonds.

“You should own [long-term Treasuries] as part of diversified portfolio, not that it's going to make you rich,” Jeffrey Gundlach, chief executive of DoubleLine Capital LP, said today at the Altegris strategic-investment conference in Carlsbad, Calif. Treasury bonds are negatively correlated to stocks, which is why investors should use them as a diversifier, he said.

In addition, the so-called bond bubble is a myth, according to Mr. Gundlach.

“Who here owns a Treasury bond fund?” he asked the crowd of 500, about half of whom were advisers, looking for a show of hands. “Maybe about 2% of the room. It's hard to say Treasury bonds are over-owned.”

U.S. investors have more than 45% of their assets in equities, far more than they have in bonds, he added.

And while many worry that the Federal Reserve's quantitative-easing program will lead to inflation, “I'm here to tell you that that point of view is dead wrong,” Mr. Gundlach said.

Struggling economies and weak commodities prices don't indicate any short-time price pressures, he said.

The Fed might inflate away some of the debt, but that scenario won't play out anytime soon, Mr. Gundlach added.

In the meantime, get used to low rates.

“I don't think rates necessarily need to rise,” he said, pointing to Japan, where rates have been in the basement since 1996.

People seem more concerned about how to rejigger portfolios for when the Fed ends quantitative easing, but “that's the wrong question,” according to Mr. Gundlach. Instead, investors need to ask how to cope with ongoing low yields.

Quantitative easing “is not going to stop … It will go on as far as the eye can see,” he said.

Japan's new aggressive monetary policy is an interesting experiment to watch, Mr. Gundlach noted. Its level of quantitative easing is now 2½ times larger than the Fed's as a percentage of gross domestic product.

Yields have gone down in Japan because, like in the U.S., central banks' bond buying “goes right through the heart of the [government] bond market,” he said.

In addition to Treasuries, Mr. Gundlach likes BB- to BBB-rated corporate dollar-denominated emerging-markets debt.

“You can get about 7% yields. I think those yields are too high, so there's profit potential,” he said

And “it's absolutely certain that real estate will go higher [in the U.S.] from a lack of supply,” Mr. Gundlach added.

Navigate accordingly.

Larry Doyle

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I have no business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.