DoubleLine Portfolio Manager Ken Shinoda kicks off this episode of Channel 11 with a review of January 2024, calendar year 2023 and the consensus outlook for the U.S. economy (0:25). Then he covers his own outlooks for monetary policy, the U.S. economy and risks and opportunities in the markets for the year ahead. “The expectation by economists is kind of a mixed bag with some people saying ‘soft landing,’ ‘all is clear,’ and others still hanging on to their recession calls.” For those who subscribe to a soft-landing outlook, Mr. Shinoda warns about negative trends in employment in cyclical industries and rising credit card delinquencies. Among other topics treated by Mr. Shinoda:
– (3:35) The real federal funds rate (fed funds minus inflation), the debate over whether the real rate at 2% is restrictive and changing market expectations of the future level of the federal funds interest rate.
– (6:15) Mr. Shinoda’s view that, barring deterioration in economic data, the Federal Reserve will not cut policy rates until May or even until summer.
– (7:14) After two years of positive stock-bond correlation, negative correlation should resume, allowing bonds to provide protection against stock declines, thanks to inflation having cooled to lower levels.
– (8:14) While home prices and rents have contributed to consumer price inflation, these should become sources of disinflation in the future. What the Fed is still waiting to see is lower upward pressure on wages. Another possible source of upside inflation surprises: the rise of shipping costs due to global geopolitical tensions feeding into goods inflation.
– (10:50) The performance of fixed income sectors in 2023, aided by the context of falling inflation.
– (12:13) The performance of global equity markets in 2023 and January 2024, including the thin breadth of leadership in U.S. stocks and heavy bets on index futures chasing the market higher.
– (15:53) Broad weakness in commodities, including less-than-expected rises in energy prices in spite of conflict in the Middle East, all indicating slow global growth and a positive sign for bonds.
– (17:00) The yield on the 10-year U.S. Treasury note, warning investors not to chase this bond rally and the U.S. dollar’s relationship to the 10-year yield.
– (19:01) Fixed income performance in January 2024, including rallies in bank loans and once-unloved commercial mortgage-backed securities, the outlook for fixed income in the new year, and relative valuations between securitized credit and corporate credit. In the wake of “monster rallies” in corporate credit, Agency residential mortgage-backed securities and AAA non-Agency commercial mortgage-backed securities offer the most attractive spreads relative to history.
21:01) A closer look into commercial real estate (CRE) values by sector (office, apartment, self-storage, industrial, mall) and a discussion of growing clarity in the wake of lower interest expense and a reopening of debt markets to the asset class.
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Mr. Shinoda joined DoubleLine at inception in 2009. He is Chairman of the Structured Products Committee and oversees the non-Agency RMBS team specializing in investing in non-Agency mortgage-backed securities, residential whole loans and other mortgage-related opportunities. Mr. Shinoda is co-Portfolio Manager on the Total Return, Opportunistic Income, Income, Opportunistic MBS and Strategic MBS strategies. He is also lead Portfolio Manager overseeing the Mortgage Opportunities private funds. Mr. Shinoda is also a permanent member of the Fixed Income Asset Allocation Committee, as well as, participating in the Global Asset Allocation Committee. In addition, he hosts DoubleLine’s “Channel 11 News” (Twitter @DLineChannel11, email@example.com), a webcast series that provides market insights and commentary with peers and industry experts. Prior to DoubleLine, Mr. Shinoda was Vice President at TCW where he worked in portfolio management and trading. He holds a B.S. in Business Administration from the University of Southern California and is a CFA® charterholder.