Bond King Jeff Gundlach shares a bullish short-term opportunity he’s snatching ‘for the first time in a long time’ — and discusses the biggest risks he’s seeing investors taking right now

  • Jeffrey Gundlach, the CEO and chief investment officer of DoubleLine Capital, said in a webcast on Tuesday that he turned positive on the dollar "for the first time in a long time."
  • Gundlach, who remains "a big dollar bear long-term," predicted a weaker US dollar in a January webcast.
  • The so-called “bond king” also warned about the risks in the triple B-rated investment-grade corporate bond market, high yield bond market, and Treasury inflation-protected securities.
  • Click here to sign up for our weekly newsletter Investing Insider.

  • Visit Business Insider's homepage for more stories.

Bond king Jeffrey Gundlach, a self-proclaimed long-term dollar bear, has turned positive on the dollar "for the first time in a long time," the CEO and CIO of DoubleLine Capital said in an investor webcast on Tuesday. 

"I believe that the dollar is in a counter-trend rally," said Gundlach, who turned bullish on the dollar a couple of weeks ago as a short-term move. 

The billionaire bond manager had predicted a weaker dollar in a January webcast and pointed to commodities as the asset class mostly like to benefit from the dollar's decline. 

This time around, however, the dollar's rise indicates bad news for the S&P 500 and gold. 

"If the dollar goes up, I think the S&P 500 is going to go down," he said. "And so that has begun to happen." 

Last week's sell-off drove the tech-heavy Nasdaq towards correction territory, defined as a 10% decline from recent highs. The S&P 500 fell 2.8% to its lowest level in a month while the Nasdaq declined 4.1% on Tuesday, but stocks have pusher higher in midday Wednesday trading. 

Gundlach also turned negative on gold shortly after his bullish move on the dollar because the two things tend to move in opposite directions. 

"I think gold goes higher over time but this is bad trade location for gold," he said. "We are modestly negative on it for the short term, though, bullish for the long-term."

The risks of fallen angels, a "distorted" high yield market, and TIPS

Gundlach also reiterated his concerns about the quality of some investment-grade corporate bonds dipping into the triple-B-rated debt territory. 

He explained that if half of the BBB-rated bonds were to de downgraded into junk bonds and become the so-called "fallen angels," the junk bond market would grow by more than 100% in size. 

"And if that were happening, it would probably be economic distress, and it probably wouldn't invite buyers at the levels that we see today," he said. "So there's an awful lot of risk of the junk bond market being overwhelmed by downgrades and maybe sort of capsizing under the amount of water that's taking on."

But his view on the high yield market itself is not sanguine either, primarily because of the Federal Reserve's stimulus purchase of corporate bonds and junk bonds.

"The high yield bond market is being distorted by inflows, it's being distorted by the Fed having at times bought ETFs and bonds," he said.

Gundlach also attributed the negative real yields of Treasury inflation-protected securities, or TIPS, to the Fed's participation in the market. 

"The Fed definitely has been one of the factors in getting real yields to really low levels, which is really at odds with economic fundamentals," he said. "We don't like TIPS versus nominal bonds at all, because we think the Fed has manipulated them to the point where you are probably going to be better off in nominals."

Gundlach co-manages the $52 billion DoubleLine Total Return Bond fund (DBLTX) with Andrew Hsu and Ken Shinoda. The fund has outperformed its benchmark index and category peers, returning 3.4% year-to-date, according to Morningstar. 

Get the latest Gold price here.

Source: Read Full Article