There  were 3 take aways from yesterday’s conference call for us in order of appearance.

  1. Gundlach is still calling for a much weaker USD despite that being one of his few incorrect calls in 2018. As a corollary, EM would outperform US stocks  if this were to happen
  2. He is leaning towards recessionary opinion, but cannot put a fine point on his indicators, some of which contradict themselves by his own tacit admission
  3. The Headline statement of the US total debt being $1.4 trillion while the deficit is $900mm “is a completely horrific  situation” was  his closing point. This to us is consistent with his calls for a weaker USD as governments debase themselves out of debt

The presentation was solid and dry for the most part as this was a  solicitation of new investors. Once more money is raised, watch  for the “Bond King” to talk his position more on CNBC etc.

First: How Did Gundlach do in 2018?

Courtesy of Bloomberg, here is a summary of what he predicted would happen last January, and the outcome as of Dec 31.

U.S. Equities

  • Call: Expect a run-up early in 2018, but an eventual reversal that would leave the market down for the year.
  • Outcome: The S&P 500 Index peaked on Sept. 20 and finished with a loss of 4.4 percent, including dividends.

Emerging-Market Equities

  • Call: Not a great time for traders to be buying, but long-term investors may benefit from attractive valuations relative to the U.S.
  • Outcome: The MSCI EM Index did worse than the S&P 500, dropping 14 percent on a total-return basis; price-earnings ratios still favor emerging markets.

European Equities

  • Call: A value trap.
  • Outcome: The Euro Stoxx 50 Index lost 16 percent after dividends in dollar terms.

Two-Year Treasuries

  • Call: Two-year notes could exceed 2.5 percent, but they’re “actually a pretty no-brainer investment” because they offer positive returns if held to maturity, when other assets may be reasonably priced.
  • Outcome: Yields stayed above 2.5 percent from June 11 to Dec. 28 and short-term bond funds generated positive returns.

10-Year Treasuries

  • Call: If rates on the 10-year surpass 3 percent, “then it’s truly, truly game over for the ancient bond bull market.”
  • Outcome: Rates closed above 3 percent on Sept. 18 and climbed to 3.24 percent Nov. 8, but then crept back down as investors seeking a haven pushed up bond prices.

Corporate Credit

  • Call: It’s a bad time to buy corporate bonds because “almost all the juice is out of the orange.”
  • Outcome: The Bloomberg Barclays US Corporate Bond Index lost 2.5 percent.

U.S. Dollar

  • Call: A short-term rally, but the big move will be to the downside.
  • Outcome: The dollar spot index hit a year-low on Feb. 15 before climbing to a 12-month high on Nov. 12. It’s still above the Jan. 9, 2018, level.

U.S. Dollar

  • Call: A short-term rally, but the big move will be to the downside.
  • Outcome: The dollar spot index hit a year-low on Feb. 15 before climbing to a 12-month high on Nov. 12. It’s still above the Jan. 9, 2018, level.

U.S. Recession

  • Call: No signs of a recession among leading indicators.
  • Outcome: While some warning signals are flashing now, the economy is still growing.

What are His Key Themes for 2019?

Dollar Weakness will Augur EM Stock Out-performance

Looking at markets, Gundlach highlights the recent outperformance of Emerging Markets, which is likely due to the ongoing weakness in the dollar. Predictably, Gundlach says that if the dollar continue sto weaken, EM will outperform the S&P.

Gundlach also highlights the divergence between the S&P and the rest of the world, where the “amazing thing” was the decoupling in the early summer, yet in December we saw a sharp convergence between the two key markets once the dollar started to slide. Even so, Gundlach still sees Europe as a value trap, especially if the Euro gets stronger, and adds that if we see dollar weakness, that could be a “harbinger of change.”

The Fed is Complicit Again

Commenting on the Fed earlier, Gundlach said that Powell staged a “full capitulation” on Friday with comments that policy makers are “listening carefully” to markets, where he “went from pragmatic Powell to Powell put and the markets have been throwing a party since then.” And so, with the market rebounding, Gundlach is “sure that Jay Powell and the Fed are feeling better about where they stand and their plans to do quantitative tightening further.”

More on Dollar Weakness

Meanwhile, a clear theme that has emerged is that for Gundlach the biggest variable in the market as we enter 2019 is the (declining) strength of the dollar, and looking at the following Fib and relative strength index, Gundlach has spotted a peak and cautions that should the 38 Fib retracement be breached, “I would not be surprised to see us moving quickly to 94 in the DXY” (he adds that for those who don’t like to focus on technicals, you can “cover your ears and hum”.)

Debt Matters

Looking at the surge in the national debt in the past decade he said: “If you tuned out, now tune back in,” Gundlach prefaced the following chart, and reminds listeners that in fiscal 2018 total US debt by a whopping $1.4 trillion, far above the roughly $900 billion budget deficit. “This is a completely horrific situation” Gundlach exclaimed…



1-8-19 DoubleLine Just Mark…


Other Key Takeaways via BBG

  • The government shutdown is adding to rising worries on top of wobbly stocks and concerns about the U.S.-China trade impasse.
  • The money manager walked through recession indicators and noted that some are now flashing yellow, such as junk bond spreads, consumer expectations and homebuilder confidence.
  • It’s a time to invest in emerging markets “relativistically,” Gundlach said. Emerging market stocks will beat the S&P 500 Index if the U.S. dollar weakens.
  • He also spoke about Fed chairman Jerome Powell, calling his comments on Friday a capitulation: “He went from pragmatic Powell to Powell put and the markets have been throwing a party since then.”
  • Gundlach reiterated that he sees Europe as a value trap.
  • On Bitcoin, which he rightly predicted would fall last year, Gundlach said in this year’s presentation that the cryptocurrency’s price could easily make it to $5,000. But it’s “not for the faint of heart,” he said.
  • When it comes to the bond market, Gundlach said it’s probably still in a long-term yield uptrend despite a recent rally.
  • Investors should use the recent strength of junk bonds “as a gift, and get out of them,” focusing instead on companies with strong balance sheets this year. “That’s going to be the way to survive the zigzags in 2019.”

Good Luck