Jeff Gundlach Warns "The Fed Is About To Make A Big Mistake" (& That's Why Bond Yields Are Crashing)Submitted by Tyler Durden on 01/28/2015 22:06 -0500
Since The FOMC's "hawkish" statement, bond yields have utterly cratered as near-record speculative short positioning in bonds unwind the long-end (and worries about international problems - "and readings on financial and international developments"). However, fundamentally speaking, DoubleLine's Jeff Gundlach explains, the Federal Reserve is on the brink of making a big mistake simply put, "if Fed Chair Janet Yellen goes ahead with this plan (to raise rates for 'philosophical reasons'), she runs the risk of having to quickly reverse course and cut interest rates."
It has been a rough start to a new year as all of the gains following the end of the Federal Reserve's flagship "QE-3" campaign have been erased. There is currently little concern by the majority of Wall Street analysts that anything is currently wrong with the markets. While earnings estimates are rapidly being guided down, it is likely only a temporary issue due to plunging oil prices. However, not to worry, the economy is set to continue its upward growth trajectory. Maybe that is the case. But as investors we should always have a watchful eye on the things that could possibly go wrong that could lead to a rapid decline in investment capital.
Our question is this: if indeed the shale boom is now turning to bust, and if indeed the vast majority of jobs created were thanks to the shale revolution (which is about to go in reverse), what happens to the primary source of high-paying jobs: the energy sector? Before you answer, take a look at the following chart, courtesy of the Dallas Fed.
By now, it is no secret that the one state that conventional wisdom expects to suffer the most as a result of the crude collapse is the one state that through the Great Recession was the primary provider of (well-paying) job creation, the same state which is now expected to enter into a full-blown recession. But is it really Texas that will be impacted the most? The answer, at least according to a recent Pew report, is a resounding no.
With Bill Gross still in cross-asset limbo, it appears the undisputed fixed income crown, for now, goes to DoubleLine's Jeffrey Gundlach who recently opined, "something is not right." Shortly, the monarch of money markets will be discussing the economy, the markets and his outlook 2015, in his latest webcast titled, rather ominously, "V". Given Gundlach's concerns about the "health of the economy and financial system," we suspect the V-for-Vendetta climax anology may well be more what he had in mind... Full presentation below
"Oil is incredibly important right now. If oil falls to around $40 a barrel then I think the yield on ten year treasury note is going to 1%. I hope it does not go to $40 because then something is very, very wrong with the world, not just the economy. The geopolitical consequences could be – to put it bluntly – terrifying."
"Something Is Not Right" Jeff Gundlach Is "Concerned About Health Of The Economy & Financial System"Submitted by Tyler Durden on 01/05/2015 20:30 -0500
Having warned of the "terrifying consequences" of oil prices staying this low, DoubleLine's Jeffrey Gundlach, in an extensive interview with Finanz und Wirtschaft, warns he is "beginning to see signs of investor concern around the edges about the health of the economy and about the financial system. Historically, when junk bonds give up the ghost and treasuries remain firm, it is a signal that something is not right." Touching on everything from a string dollar to Indian stocks, and from Oil to bonds, and The Fed, Gundlach concludes, "the only places where there is inflation is in places that are painful. Raising interest rates against that backdrop seems like a poor idea. So I just hope the Fed thinks carefully about what it is doing." Boxed-in much?
WTI crude oil prices are now down almost 55% from the June highs, the impossible just happened... WTI Crude broke into the $40s... the 6-month plunge is the largest since the pre-Lehman plunge and 2nd biggest plunge in 28 years.
Having totally and utterly failed in 2014, the consensus for 2015 is once again higher rates (well they can't go any lower right?) with year-end 2015 expectations of 3.006% currently (having already plunged from over 3.65% in July). However, at the other end of the spectrum, DoubleLine's Jeff Gundlach told Barron's this weekend, the 10-yr Treasury yield may test the 2012 low of 1.38% as the Fed’s short-term rate increase is poised to trigger "surprising flattening" of yield curve.
Every year, David Collum writes a detailed "Year in Review" synopsis full of keen perspective and plenty of wit. This year's is no exception. "I have not seen a year in which so many risks - some truly existential - piled up so quickly. Each risk has its own, often unknown, probability of morphing into a destructive force. It feels like we’re in the final throes of a geopolitical Game of Tetris as financial and political authorities race to place the pieces correctly. But the acceleration is palpable. The proximate trigger for pain and ultimately a collapse can be small, as anyone who’s ever stepped barefoot on a Lego knows..."
There can be only one bond king. And with Gross in cross-asset limbo, that means that the undisputed fixed income crown, for now, goes to the one true monrach Jeffrey Gundlach. And in a few moments, said fixed income royal will be discussing the economy, the markets and his outlook for what he believes may be the best investment strategies and sector allocations, in his latest webcast titled, to borrow Barron's latest headline, "This Time It's Different."
Markets Digest Wristwatch, NIRP Monetization, Catalan Independence News; Push Yields, USDJPY Even HigherSubmitted by Tyler Durden on 09/10/2014 06:08 -0500
Overnight the most notable move has been the ongoing weakness in rates, with USTs reversing earlier Tokyo gains after BoJ Deputy Governor Iwata, in addition to commenting on a lot of things that didn't make much sense, said he didn’t see any difficulties in money market operations even if BoJ bought bought government debt with negative yields, as InTouch Capital Markets notes. As a reminder, yesterday we noted that in a historic first the "Bank Of Japan Monetizes Debt At Negative Rates." As Bloomberg notes, this may be interpreted that BoJ may target negative yields to penalize savers, which "all boosts the appeal of yen-funded carry trades." In other words, first Europe goes NIRP, now it's Japan's turn! So while this certainly lit the fire under the USDJPY some more, which overnight broke about 106.50 and hit as high as 106.75 on Iwata's comments, it does not explain why the 10Y is currently trading 2.52% - after all the fungible BOJ money will eventually make its way into US bonds and merely add to what JPM has calculated is a total $5 trillion in excess liquidity sloshing in the global market.
In a few moments, the up and coming "bond king challenger", Jeffrey Gundlach will hold one of his signature free to all webcasts, this time focusing on what Gundlach calls the "Fixed Income Playbook." Will he agree with David Tepper that the bond bubble is now bursting, or, on the contrary, side with JPM and its estimation that there is $5 trillion in excess liquidity which will inevitably find its way into the bond market and send yields to even lower record lows, find out in minutes.
When we first brought the market's attention to high-yield credit's flashing red warning, it was shrugged off as unimportant by most - stocks are rallying so who cares (even though we explained in detail why equity investors should care). Now that the mainstream media has all become high-yield bond experts we thought it worth considering how much worse this could get. As Barclays notes, for those keeping track, retail funds have thus far seen 22 consecutive days of redemptions for a total of $16.9bn in assets - the longest streak in history and while the effect of retail selling on valuations has not been negligible, it has also not been proportionate to the magnitude of the outflows (yet).
We discussed the major rotation, overvaluation, and underperformance of high-yield credit markets recently as relevering stock-buying-back firms find their source of funding starting to dry up. The question is - why now? Perhaps this chart of the wall of maturing corporate debt ($3.9 trillion by 2019 which will need massive liquidity to roll-over and will eat earnings thanks to higher coupons) is what triggered the anxiety as the end of QE and start of rate-hikes looms close...