January 4, 2023 | Round Table

DoubleLine Round Table Prime, 2023 - Part 2: Market Outlooks 1-4-23

In the second segment of Round Table Prime 2023, the panelists offer their outlooks across equity, fixed income, commodity and other markets. Then they are asked to share hypothetical fixed 12-month asset allocations for the calendar year. The panelists are host DoubleLine CEO Jeffrey Gundlach, and guests James Bianco, President and Macro Strategist at Bianco Research; Danielle DiMartino Booth, CEO of Quill Intelligence; author and Fox Business anchor Charles Payne; and David Rosenberg, President of economic consulting firm Rosenberg Research & Associates. The discussion, recorded Jan. 4, 2023, was moderated by DoubleLine Deputy Chief Investment Officer Jeffrey Sherman.

Mr. Sherman opens the discussion (1:39), asking for thoughts on what was learned from the vehicles of 2022’s excesses such as meme stocks, crypto, SPACs and NFTs (aka digital tokens). “Seeing some of the evaporation of wealth in those assets, what does that connote to the other parts of financial markets?

Is it something endemic, or are these just fads and we shouldn’t extrapolate that to the financial markets?” The panel next discusses speculative excesses and the resulting evaporation of wealth as phenomena of the business cycle (10:42). “Every cycle does have its own unique characteristics and peculiarities, but patterns re-emerge,” Mr. Rosenberg says. “There’s always different culprits where the excesses lie, and then they get exposed in the interest rate cycle.” In the present cycle, Mr. Rosenberg foresees a “15 multiple on recession earnings, and you’re below 3,000 on the S&P (500 Index). So, there’s more pain to come.”

Mr. Sherman next steers the conversation to international (28:05), asking if 2023 will at last see emerging markets equities lead U.S. equities after a decade of underperformance. “The United States is wildly overvalued compared to the rest of the world,” Ms. DiMartino Booth notes. “The United States is still two-thirds of global market capitalization.”

Mr. Gundlach notes that “the rest of the world has started to outperform the United States. You have to look at a relatively short-term view, but since the Fed went to 75 basis point chunks in raising interest rates, EM equity is basically up about well, since November, it’s up 15%.” With the dollar weakening and the U.S. likely in recession in 2023, he says, “I think that the Fed is going to cut rates much more aggressively than the market thinks, and that is going to be impetus for the dollar to weaken. That suggests that the trend change that has occurred may have some legs to it.”

Rounding out the segment, Mr. Sherman asks the panelists for what he calls “free asset allocation advice” (41:57): their optimal investment allocations for 2023. “You can’t touch it. It’s Rip Van Winkle. Go to sleep, we’ll wake up, and we’ll look at it at the end of the year.” The panelists offer a variety of portfolio constructions. Mr. Payne, for example, offers an eclectic mix, including 15% in a longer-duration Treasury exchange-traded fund, less than 5% gold, less than 5% in Bitcoin, 5% in cash and “some whimsical things in the art world.”

For example, as part of Mr. Bianco’s allocation, he puts 50% into a curve trade “because I got two ways to win versus duration.” His curve steepener shorts the front end of the Treasury curve and goes long the back end. In the event of recession, he notes, “the Fed has to cut rates, down come short rates, and you get my steepener, or I’m going to win because the economy hangs in there. And Powell and Neel Kashkari are right. They’re going to five and a half (5.5%), and they’re going to stay there all year. Then the bear market in bonds isn’t over.”

About the Hosts

About the Hosts

  • Jeffrey Gundlach

    Jeffrey Gundlach

    Mr. Gundlach is CEO of DoubleLine.  In 2011, he appeared on the cover of Barron's as "The New Bond King."  In 2013, Institutional Investor named him "Money Manager of the Year."  In 2012, 2015 and 2016, he was named one of "The Fifty Most Influential" in Bloomberg Markets.  In 2017, he was inducted into the FIASI Fixed Income Hall of Fame.  Mr. Gundlach is a summa cum laude graduate of Dartmouth College, with degrees in Mathematics and Philosophy.

  • Jeffrey Sherman, CFA

    Jeffrey Sherman, CFA

    As DoubleLine’s Deputy Chief Investment Officer, Jeffrey Sherman oversees and administers DoubleLine’s Investment Management sub-committee coordinating and implementing policies and processes across the investment teams. He also serves as lead portfolio manager for multi-sector and derivative-based strategies. Mr. Sherman is a member of DoubleLine’s Executive Management and Fixed Income Asset Allocation Committees. He can be heard regularly on his podcast “The Sherman Show” (Twitter @ShermanShowPod, where he interviews distinguished guests, giving listeners insight into DoubleLine’s current views. In 2018, Money Management Executive named Jeffrey Sherman as one of “10 Fund Managers to Watch” in its yearly special report. Prior to joining DoubleLine in 2009, Mr. Sherman was a Senior Vice President at TCW where he worked as a portfolio manager and quantitative analyst focused on fixed income and real-asset portfolios. He was a statistics and mathematics instructor at both the University of the Pacific and Florida State University. Mr. Sherman taught Quantitative Methods for Level I candidates in the CFA LA/USC Review Program for many years. He holds a B.S. in Applied Mathematics from the University of the Pacific and an M.S. in Financial Engineering from the Claremont Graduate University. Mr. Sherman is a CFA® charterholder.