Jeff Gundlach

Jeff Gundlach who has been spot on with timing his calls for Treasury inflection points, did a quick Q&A with Morningstar summarizing his outlook on the economy. In a nutshell while the DoubleLine manager is still skeptical that inflation may strike, he is convinced deflation is pervasive. To wit: "markets and the economy to date have offered scant evidence to support
the inflation case. Stocks are down over the past 10 years. Real estate
is down hard over the last five years. Commodities are down sharply over
the last two years. Instead of spiking to double digits, bond yields
are hugging the ground. M3, which is now calculated only by private
economists, is down nicely over the past year. And of course money
velocity is moribund: Society has looked into the debt abyss and decided
enough is enough with the debt-based consumer economy. So, deflationary
forces still prevail. What could shift the balance of forces in favor
of inflation? A well-meaning movement to cut the deficit has at long
last arrived, maybe. But cutting the deficit that is supporting the
consumer economy will directly depress gross domestic product. If that
causes not just a look but a step or two into the deflationary abyss,
then maybe the inflation case will move to center stage." Sure, let's not forget the collapse in the shadow economy. But let's also not forget that the economy is in a vacuum, and were the Fed not in the picture, we would totally agree. But because the most irrational human being in the world is in charge of said world via his control of the US reserve currency (and irrational because he promotes exclusively policies that benefit the vast minority over the majority), we will have to disagree. And so would the price of gold.

DoubleLine's Jeff Gundlach will hold a webcast discussing the performance of his new DoubleLine Core and Total Return Funds (which as we pointed out recently had presciently started selling bonds ahead of the recent move lower), but more importantly will share his general outlook on the market. As this is the man who a few months ago warned that the US will likely end up defaulting (and very much correctly, contrary to those drinking the perpetual monetization Kool Aid, believing in the ultimate power of the Fed, which will be the last buyer long after all other marginal buyers of US debt are long gone), this webcast will be a very informative and interesting one. DoubleLine has opened up the webcast to readers of Zero Hedge. Mark your calendars - details inside.

Former TCW Total Return Bond Fund maven Jeff Gundlach, who since December has been running his own money at OakStreet-blessed DoubleLine, has just moved from "overweight" to "small underweight" on Treasurys. The gradual shift out of USTs is in line with the bond manager's forecast made in June when the 10 Year was 3.1% that yields would drop another 60 bps to 2.5%. Yet the main catalyst for the selling is driven by the inability of the 10 Year to make a new record low, unlike both the 2 and 5 Years, both of which are trading at historical tights, no doubt facilitated by the Fed's gradual encroachment of ever to the right of the entire yield curve. As Bloomberg reports: "this “divergence in behavior across the yield curve is very significant,” said Gundlach, who oversees $4.8 billion in assets in Los Angeles as chief executive officer of DoubleLine. “So while the fundamentals for low rates remain compelling, the message of the market action suggests that much of these now widely recognized fundamentals are reflected in Treasury bond prices." We are confident that given enough time, and enough fiat linen printed, the entire curve will eventually be one flat line as the Fed (and Pimco) are now the marginal buyers of any resort in their attempt to make homeownership with zero money down, an interest-free endeavor. After all, you can't have growth unless the animal spirits are rekindled, and this kind of direct intervention is the only thing the Keynesian acolytes at the Marriner Eccles building know how to do well. So where is Gundlach investing next:"We moved the proceeds from the Treasury sales into a mix of corporate bonds, including our first allocation to below investment grade corporate bonds." Of course, with even traditional MBS and UST investors now actively gobbling up HY, we are very concerned that when the inevitable flush in the B2/B space occurs, and it always eventually does, there will be no marginal buyers of anything less than IG. But with a market as broken, technically driven and centrally planned as ours, who even pretends to think about what tomorrow may bring...

In this brief interview with Morningstar, Doubleline's star MBS analyst, and the bane of TCW's existence, Jeff Gundlach, points out the glaringly obvious: i.e., that "if Citigroup was too big to fail, then so much greater is the risk for asset managers at a multiple of that market cap." Obviously the mortgage expert here is contemplating asset manager behemoths such as PIMCO and BlackRock, which have quietly become even more institutionalized within the fabric of the financial markets, than some of the TBTF banks. And without access to the Fed's discount window, liquidity threats to firms like PIMCO are exponentially greater than even for a bankrupt POS like Citigroup. No wonder Gross was offloading European sovereign debt with gusto as of last check. With total assets of over $1 trillion, saying that a failure by PIMCO, and by extension its Fed-unmoderatable counterparty risk, would have huge implications on the US financial system, is so obvious, that it is completely understandable that there is not one single provision in the Senator from Countrywide and the Congressman from Fannie's FinReg proposals on how to tackle this most recent threat to capital markets.

The big guns in LA are out swinging, with news emerging that Jeff Gundlach will get funding and a minority investment from of bond giant and other major TCW defector, Oaktree. Howard Marks' firm is now set to eat TCW's municipal lunch. And all the disciples of Robert Day had to do was promote the guy. Also, futures in the "Battle of the Attanasios"(Paul and Mark) just surged majorly in favor of the House creator.

Straight from the CIO of TCW

Gundlach June 15 -

hat tip Stephen