In his Sept. 14, 2022, webcast “Rehab,” titled in homage to the 2006 Amy Winehouse song, DoubleLine CEO Jeffrey Gundlach unpacks (0:51) a raft of data on the “credit-debit binge” of the U.S. economy and American consumers, and America’s need to go into economic rehab. A consequence of the U.S. addiction to debt, he says, is slowing economic growth. The free money printing accompanying that debt addiction, he later notes (12:48), “does not make the country richer. It makes the poor become impoverished; it makes the middle class become poor.”
On the state of the macroeconomy (9:13), Mr. Gundlach does not believe the U.S. has entered a recession. However, he warns the odds of recession in 2023 “are pretty high.” One signal of the advent of recession could come in December this year or January-February next year when (11:27) the U.S. unemployment rate could cross above its 12-month moving average. Observing the speed at which the federal funds target rate is rising toward the level of the two-year Treasury yield (17:28), Mr. Gundlach says, “The Fed is catching up. They’ve been tightening like crazy, and they’re going to continue to. And, unfortunately, I think the Fed is going to make their typical mistake of overtightening.”
In the wake of 1H 2022’s painfully steep rise in yields (27:57), Mr. Gundlach says, “the future outlook for bonds has not been this good in 10 years.” Portfolios with “a pretty low risk profile” can be easily put together to yield 8%. Given their respective valuations and the headwinds facing stocks, Mr. Gundlach also recommends selling stocks and buying opportunistic bonds. It is possible today, he says, to create an opportunistic bond portfolio yielding 12% with a capital gain potential of 5% to 15%.
Mr. Gundlach notes that U.S. stocks face a “double whammy” of rising real yields and slowing earnings. A number of long-term trends in the stock market (34:51) stopped two years ago and have since reversed. For example, the Nasdaq 100, a longtime outperformer, is lagging the S&P 500; European stocks, which lagged the S&P 500 for many years, now are outperforming. Mr. Gundlach also is interested in emerging markets equities, but the question is one of timing. “When the next recession comes, he says, “I’m strongly of the mind that emerging markets will outperform, but we need the dollar to break, and we don’t see that happening” as long as the Fed is tightening.
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.
Mr. Hsu joined DoubleLine at its inception in 2009. He is a Portfolio Manager for the DoubleLine Total Return and ABS/Infrastructure Income strategies. Mr. Hsu is a permanent member of the Fixed Income Asset Allocation and Structured Products committees. Prior to that, he was responsible for analysis and trading of structured products, where his focus included residential MBS and ABS transactions. Mr. Hsu’s responsibilities have also included structuring and negotiating terms on new-issue transactions and forming strategic partnerships with issuing entities in order to participate in key transactions. Prior to DoubleLine, he worked at TCW from 2002, where he focused on credit analysis for structured product securities and co-managed two structured product funds centered on debt and equity investments. During that time, Mr. Hsu was actively involved with portfolio management decisions and investment analysis, including reverse engineering complex CDO/CLO structures. He holds a BS in Finance from the University of Southern California and is a CFA® charterholder.