On the heels of Jeff Gundlach's "there's going to be a buyer's remorse period" warnings yesterday, the other 'bond king' has raised similar fears that the Trump rally is overdone (as are the prospects for growth behind it). Putting aside the book-talking as their bond portfolios suffer, Gross echoes Gundlach's "Trump's not the wizard of oz" comments, noting that the next president faces serious structural headwinds and warns investors "should move to cash," as any fiscal stimulus gains will be temporary at best.
Did Jeff Gundlach do it again? Shortly after the DoubleLine manager told Reuters yesterday afternoon that the Trump rally is ending, that "stocks have peaked" and that it is "too late to buy the Trump trade", US stocks tumbled to session lows, and have continued to drop overnight, with S&P futures down 0.3%, alongside sliding Asian and European markets.
"...there is a long way to go between President-elect taking office, drafting bills and getting them passed. There is even a further period of time before any actions actually passed by the Trump administration actually create perceivable effects within the broader economy. In the meantime, there are many concerns, from a technical perspective, that must be recognized within the current market environment."
Stanley Druckenmiller spoke at the Robin Hood Investors Conference today where repeated he is bullish on the American economy following Trump's victory, anticipates a much stronger dollar and higher bond yields. Notably, he joined Gundlach in predicting 10Y yields would rise to 6% over the next year or two, a process which would lead to an equity market selloff.
"Things have not suddenly become awesome over the course of the past week... It is very easy to be sucked into the gushingly positive narratives and often unsupported narratives put forth by the financial media. This is particularly true when the move in asset prices can make minutes seem like days and hours seem like months. Excessive market valuations, weak internal measures, and a deteriorating backdrop has historically been a “wicked brew” for investor outcomes."
Of all the alleged financial experts on Wall Street, only a handful made the prediction that Trump would win the presidential election, and stuck with it: Jeff Gundlach was one of them, making the correct assessment as far back as the January Barron's 2016 Roundtable. And now the time has come for Gundlach to take his victory lap.
In a recent interview with Macro Voices, Hugh Hendry is asked about the trade he has on in his fund, to which the Scotsman says that his team recently had a “eureka moment” and figured out how to design a trade, which has a negative carry when viewed in simple terms, such that they preserve the asymmetric of risk/reward while converting it to a positive-carry trade by adding another “European sovereign component to the trade”.
While Germany's largest lender would ultimately be rescued by the German government if needed, other banks in the region wouldn’t be able to count on such support, Gundlach said. “Deutsche Bank will be supported by Germany if push comes to shove, but what about Credit Suisse, which has shown a similar decline in stock price? Who’s there to bail them out?”
"In our opinion it is not so much funding issues but rather derivatives exposures that more likely to trouble markets going forward if Deutsche Bank concerns continue. This is especially true if these concerns propagate into a confidence crisis inducing more rapid unwinding of derivative contracts."
Following today's Deutsche Bank fireworks, Goldman reports that "crisis” questions are being asked: “is there risk of a financial crisis re-run” and “can a large European bank face a liquidity event”? To answer these questions we look at the total liquidity accessible to Deutsche Bank, and what are the options facing the bank next.
For the sixth year running, exuberant GDP growth projections have been drastically marked down to a new normal low. But this year is different, not only have 2016 GDP growth expectations been marked down to post-crisis lows, but The Fed - in all its wisdom - is determined to raise rates (twice if you believe them) because, in their own words“the economy is in good shape and headed in the right direction..."
The higher the market goes, the more bearish DoubleLine's "bond king" Jeff Gundlach seems to get. And yet stocks keep going higher (thanks to central banks). So have the new S&P500 all time highs dented Gundlach's skepticism? Ask him yourself during the Q&A in his latest "asset allocation webcast" set to start momentarily.