““I suspect [investors] They grab assets on a limited basis.”“
Billionaire hedge fund manager Jeffrey Gundlach said he would consider cash and gold as financial markets show increasingly “attractive” behavior by investors.
In an interview published last Thursday, Gundlach, founder of DoubleLine Capital, explained that “momentum” was driving a bond rebound and new records for the S&P 500 SPX.,
Contrary to hopes of a soft landing.
The Fed's dovish shift on Nov. 1 halted the rise in real yields, sending it all the way up It all started with categories of “preferred securities,” the so-called bond king told Pensions & Investments Editor-in-Chief Jennifer Ablan on the Service Social networking X.
Gundlach spent much of last year pushing for exposure to bonds that struggled throughout 2022 and most of 2023, before a strong year-end rally pushed yields lower into 2024.
“So what happens is people feel good about buying blue chips. They start buying some S&P 500 stocks, they buy some corporate bonds, they buy some Treasuries.
And then “something weird happens,” where those blue-chip stocks become overvalued, which is certainly what we see happening to the S&P 500.
The 7 great tech names that led stocks higher in 2023 and into early 2024, like Tesla TSLA,
And NVDA,
They're keeping up, but they're not leading. And so this seems to be where investors find a complete value situation.
He expects the S&P 500 to fall to 3,200 at the start of the next recession, something he has consistently predicted.
The rise of everything has made investors “loosen their value standards… and start moving into less valuable things,” and consider assets they wouldn't have considered two or three months ago. For example, while consumer delinquency is getting worse, “the middle part of the capital structure securities is on fire…they are going up like crazy.”
He said this led to a “market takeover… meaning people suddenly raise all offers.” For example, he said the market for unsecured residential and commercial mortgage-backed securities is seeing “25 times more demand than supply” for new issuances.
“This looks like the kind of environment that we saw going into 2000, where you have a huge narrow market that has expanded because of the desire to capture it, because of momentum. And I think that [economic] “The data that people are looking at is not really full of information,” he said.
“So there is still a lot of money flowing in, and I think that is responsible for some of the valuations in the market,” he said.
As for the Fed, Gundlach sees no change this week in interest rates, as it is “too early,” but he said the central bank is looking to cut interest rates because it realizes that inflation is falling.
The manager, who has expressed a lot of caution over the past few months about a potential recession, expects a downturn by mid-year, saying the fact that oil prices are not rising even with the Red Sea turmoil means the global economy could “not be great.” ”
As for what should be avoided? “Most parts of the credit market, even down the capital structure,” as well as assets that are back to early 2020 levels. “So what I would say is that for all of these things that have recovered and gone higher, there's actually a very weak risk-reward profile. So you don't want to have it.”
As many assets start to repricing, investors need to start looking around.
“So you have to start thinking about cash, because I think there's going to be a lot of opportunity. I'm not saying 100% cash, but I'm saying, I think at least 20%, 25% cash, because I think these things are going to get cheaper.”
The manager also likes the gold GC00,
But he has “no interest in Bitcoin,” calling it “the worst idea I could think of.” He noted that new exchange-traded funds mean investors won't lose all their money if they lose their passwords, but all the regulation means bitcoin is no longer a “Wild West” investment.
Gundlach also weighed in on this year's US presidential election, raising doubts about President Biden's debate ability and stamina, meaning former President Donald Trump is likely to end up in the White House again.
