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Thursday, October 3, 2013
Jeff Gundlach Hastily Threw Together This Presentation To Explain Why The Bond Markets Crumbled
DoubleLine FundsBond god Jeff Gundlach hosted a surprise webcast this afternoon titled: "What in the World is Going On?" Redux. "We arranged this hastily," he said.
The title is a play on his June 4 webcast, where he aimed to address the return of volatility as reflected by rising interest rates and the spectacular crash in the Japanese stock market.
However, since that call, rates only continued to surge, bringing down bonds all over the world.
Of note is the 10-year Treasury rate, which broke through the 2.5%, a level that Gundlach said would not be breached.
So what happened?
Gundlach explained that the financial markets got sucked into a liquidation cycle. It probably started with a couple of leveraged players taking risk off. This was followed by prices dropping and interest rates rising. Then more leveraged players got margin calls. More selling occured, people freaked out, and the cycle perpetuated.
But that perpetual selling may have ended.
"The liquidation cycle appears to have run its course," said Gundlach noting the recent rebound in various asset classes.
Gundlach, a Treasury bull, emphasized that in the universe of bonds, Treasuries have actually been a clear outperforming bond sector
He thinks anyone selling bond funds right now is making a mistake, as bonds are now offering more value. He reiterated his prediction that the 10-year would eventually head to 1.7%.
"Gold looks like death," he said noting that the yellow metal now appears to be a decent contrarian buy. However, he warned that it could go to $1,000 on momentum.
"Gold has a very good downside upside ratio," he added. He believes it could go down as much as 20% before going up 50% from current levels.
But if there were a contrarian idea that he liked more than gold, it's emerging market stocks. He noted that the ratio of the S&P 500 to the MSCI Emerging Markets has gone parabolic. He thinks this is bound to correct itself soon.
As usual, Gundlach offered a deck of charts that he used to frame his thesis.
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