Jeff Gundlach, the CEO of DoubleLine Capital, on Tuesday held his quarterly “Total Return Webcast.”
The big takeaways included:
- Traders and speculators in the stock market should be raising cash “literally today”; Gundlach forecasts a lower stock prices this summer. Long-term investors, however, should be able to weather a pullback in stocks. The low volatility environment should not be seen as a “new paradigm” for the market. The 10-year yield is not likely to rise to 3% this year, but could top its March high near 2.575%.
Here are the highlights:
What “small change” means.
It reflects the fact that markets have been treading water, Gundlach said, amid low levels of volatility in stock and bond indexes.
It also reflects the fact that some people are trying to obstruct President Donald Trump’s agenda as much as possible. “Small change is what they’re looking for,” Gundlach said.
It’s also a 1976 jazz album by Tom Waits.
“The officials in Europe continue to be drinking the Kool-Aid.”
Federal Reserve Chair Janet Yellen is involved to a lesser extent, Gundlach said.
Here’s just how low volatility is today in the context of data since 2005.
This doesn’t mean that low volatility will be here forever, Gundlach said. He advised investors to diversify in stocks, but not bonds.
Gundlach disagrees with Yellen that GDP is a “noisy” indicator.
Corporate debt maybe signals a recession.
In the last three recessions, the corporate debt-to-GDP ratio hit a high and rolled over, like it has now.
However, it’s not a leading indicator, Gundlach said, adding that DoubleLine does not see a recession happening soon. “I don’t see the rollover causing the recession, I see the recession causing the rollover.”
This leading indicator shows there’s no recession on the horizon.
It has reversed direction and plunged below zero before past recessions. It’s looking “downright strong,” Gundlach said.
The Fed is still wary of following the Taylor Rule.
The blue line up top shows where the Fed should have the Fed funds rate, and trails the long-term forecast for rates.
But some of these economic formulas don’t work anyway …
This illustrates just how low volatility is
About half of trading days in the last six months saw stocks move less than 0.25% in either direction.
That’s made the performance of “long-VIX” contracts terrible.
Bond forecasters are not capitulating this year.
“This time, it looks to me like the consensus might be right” that yields will remain little changed, Gundlach said.
The 10-year yield is unlikely to hit 3% this year, but it may make a new high, he added. It could be at 6% by the next election, he said.