Jeff Gundlach: "There Is No Such Thing As Economic Analysis Anymore"

Tyler Durden's picture

Some always entertaining and informative thoughts on precious metals (which after weeks of suppression are finally soaring on a sliding USD - the Taper pricing in is over, time to price in the Untaper), Japan, Apple, nat gas and, of course, central planning from DoubleLine's Jeff Gundlach.

Since we're dealing with markets that are being manipulated by central bank policies, there is no such thing as economic analysis anymore. All you have is the imaginations of central bankers, and you don't know what they're going to do, so you have to be diversified. For the inflation part of the portfolio, silver is the right one because metals as inflation hedges are dead money. They don't pay anything. You want to allocate as little as possible, while still covering that base. Because silver is the highest beta, you want silver for your inflation protection because you can put less in it, less dead money. I believe if gold doubles, silver goes up 4x. You have twice as much dead money if you use gold instead of silver, so silver is a more efficient way to do it. We're in a deflationary world right now, not inflationary, though everyone is worried about inflation. The message the markets are saying, outside of the stock market, is deflation. Not surprisingly, silver is down but the Japanese stock market is the place to be.


Perhaps it started yesterday. I think that the complacency regarding stock market risk is very similar today to 1998, 1999 and and 2006 and 2007. This concept that it's the only game in town. This reason to own the stock market is TINA (there is no alternative). That's ridiculous. There's just as many alternatives as there's ever been. There's cash, there's bonds, there's real estate, there's hedge funds, there's commodities, there's foreign markets. What a strange world. I can't even think of a worse argument to own a market than TINA. It's transparently flawed on the surface of it. We'll see what happens. I think we're at 92% bullishness right now in the world of advisors on stocks. The most extended sentiment I've ever seen is 98% bearishness mid-March of 2009. I'd say the bullishness today looks remarkably similar to the bearishness of March 2009.

On AAPL and going from short to long:

We're actually in Apple. We actually own Apple in one of our equity portfolios. We bought at $405 the first time, and I think our average cost is below $425. I said that Apple would go below $425, but I wasn't committed to buying it. I think Apple is an interesting play. I think Apple is detached from the stock market for sure. The market went up a lot and Apple went down a lot. It's building a base. It's sorta cheap. If you strip out the cash, you've got a 7 P/E or lower on the business, it's a cash machine. I sorta like Apple. So, we own a little bit of Apple in our equity strategy.


I think if the stock market falls, which is almost guaranteed to fall sometime between now and year-end, it's almost guaranteed. Who knows how much it'll fall, who knows if it'll end higher or not, but it's almost to fall after this sort of a run. If you look at Japan as a harbinger, I think Apple will outperform. It could easily preserve capital. I see it as a defensive way of building out your stock portfolio against beta, which looks pretty dicey right now. We own a little bit of Apple right now. I like the stock better than the bonds. It's interesting how Apple has turned into a hated stock from the most beloved stock of the decade. It's just because so many people who own it are underwater.

On natgas:

I'm long natural gas. I've been long natural gas for a long time. I said Apple was a generational short, and people took that the wrong way. What I meant is, that over the course of a generation, Apple's stock is going lower. I didn't mean that Apple is the greatest opportunity in a generation.


Taking it the right way, natural gas is a generational long. It's something that I think is very likely to go higher in price. It doubled from when I bought it, but it's been volatile. I kinda think that most of the things that have done well in the past year are overvalued. What do you do? If you believe in something as a long-term play, the problem that you have is when you get out of it, what do you do next? If you sell natural gas at $4 (per BTU), what are you hoping for? It goes to $3.75? Are you going to buy it then? What if it goes to $4.50? Are you going to buy it then? I think it's going to double again. It doubled once, it's going to to double again. It might take five years, it might take ten years, but you can't get too cute. It's sort of like the Japanese stock market. It went to 13,000 which was my target, which sounded aggressive. That was my target for the year. When it got to 13,000, they said what are you going to do? I said 'You just have to stay long. The momentum is too strong. It's too major of a deal.' If you're going to own any stock market, it's Japan. If the reason to own stocks is quantitative easing, you want to own the ones that have the biggest support, which has been Japan. We're still long Japan. I'm not surprised it's dropped. I think it's going to drop further. We're long from 8,500. Obviously we don't expect it go up every day. I think natural gas is the same sort of thing. I wouldn't sell it.

Full interview can be found in TheStreet

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doomandbloom's picture

well this was happening for sometime now....its not a new phenomenon. We are so used to it...its impossible to get away.

BOAR, Mitchez

Pladizow's picture

Its been this way for 4 years and the market has only gone up!

brewing's picture

the correction will be epic...

francis_sawyer's picture

"All you have is the imaginations of central bankers, and you don't know what they're going to do..."


BWAAHAHAHAHA!... Yes you fucking do know [what they're going to do]... They're going to fucking print money until the cows come home & hand it over to their fellow tribesman to make bets on in a big casino... The ones who make the wrong bets, they'll add the losses to the bill & tax the 98% for the balance...

Fucking cheesepopes falling all over themselves trying to buy some time by conning the masses into thinking that building an even "fancier" Rube Goldberg machine is the ticket [& lining their own nests in the process]...

ParkAveFlasher's picture

Who needs analysis with all this great data?  Just buy buy buy your troubles away. 

DaddyO's picture

Correction my ass, as long as the CB's own the printing presses, there will be no correction.

More likely, the dollar will lose its reserve currency status and the slow slide to oblivion will escalate.

We will see more unrest and the heavy fist of a facist/socialist ruling class will thump any resistance.

Then things will unwind and quickly...


yogibear's picture

The constitution has been shredded apart. Even though many are sworn to uphold it, they ignore it.  Correct, a fascist/socialist ruling class is already in charge. It will become more obvious as time passes.

slaughterer's picture

Love that Gundlach-as-young-new-wave-musician photo.  

Jim in MN's picture

Terminal Decadence

fonzannoon's picture

Gundlach is one of the very few people that I follow intently. He sees through the bullshit.

edit - to my junkers fwiw

Gundlach is so confident that phase three is coming that he’s planning to start an equities fund and a long-short hedge fund in early 2013 to offer investors additional protection from inflation. Gundlach, who says he buys assets only on the cheap, is also sitting on cash in anticipation of scooping up securities at fire-sale prices. Cash makes up 17 percent of his Total Return fund.


He says the amount of money investors can make in phase three will dwarf what they can earn now.

“I’m waiting for something to go kaboom,” Gundlach says in his office a week before the L.A. speech. “If phase three takes two years, it’s worth waiting for. The markets don’t have lots of opportunity now.”

Gundlach has a history of making brash pronouncements. At a conference in New York in April, he told a Bloomberg News reporter that he would abolish the 99-year-old Federal Reserve, a position espoused by failed Republican presidential aspirant Ron Paul.

“That’s a very extreme view,” says Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “Given how the Fed has evolved since the early 1900s, to say we’re going to change all that and start over is absurd.”

Richard Head's picture

So Jeffrey, you're saying you own a little bit of Apple?

Zen Bernanke's picture

if the central banks put policies in place that make fundamental analysis useless, then trading should be simple as there are no outside influences controlling price direction other than central bank policy.   Just follow their lead and let them do all the heavy lifting. 

DaddyO's picture

So are you following their lead and how's it working out for you?


angel_of_joy's picture

This Gundlach guy gets better by the day... and his voice has a nicer pitch than Schiff's, too !

Mountainview's picture

Exactley, and I will only invest in markets without fancy Central Bank policies...there remain only a few...

youngman's picture

Its funny how everyone now knows the central banks are the market...and we are just on for the ride...but we still try to steer the wagon....we are going to find out how much POWER these cental bankers have as they are going to need it all to save themselves....I predict unlike the 20's when it was just the Weinmar Republic with the hyperinflation....I see the whole western world curriencies getting sick to where no one wants them....where a Colombian Peso is better than a japanese yen or a US Dollar....

Kreditanstalt's picture

Trend-following momentum monkey #1...

These guys have sooooo... much (leveraged) money  they'll swamp any market which they're in when they sell out and there'll be no profit whatsoever left in it.  Our only hope is to bet on something that is unpopular and un-trendy and in short physical gold.

Bendromeda Strain's picture

Exactly - he is expecting his paper silver bet to hold value until needed? Good luck getting cashed out before your estimated gains are realized.

IamtheREALmario's picture

Seems as if the central banks should be liable for ALL MARKET LOSSES THAT ANYONE INCURS IN THE MARKET from the point at which they started manipulating the markets. It is not a free market because of the Fed and the Fed is using its monopolistic money creation power to pick winners and losers, including Fed associated banks that have inside information on Fed manipulation.

I believe that somewhere written into the Federal Reserve Act of 1913 there is something about the Fed not being criminally prosecutable... however, I do believe that it can be sued. And, if our politicians had any sense of morals or ethics they would re-evaluate the process under which the Federal Reserve Act was passed and have it challenged in the courts.

Alas our policians are afraid to be anything but pathetic corrupt puppets.

Zen Bernanke's picture

good point, however, it should be fairly obvious to everyone by now the politicians are either complicit in this charade or so stupid they can't comprehend it. 

GrinandBearit's picture

AAPL?  The innovation died when Jobs did.  Taking an iphone and strapping it to your wrist is not innovative.  Taking an iphone and putting it inside a tv is not innovative either.

The stock buybacks will keep it up for a little while, but Samsung is eating their lunch.

nantucket's picture

whoa, whoa...hold up a minute.  Steve Jobs DIED???

nope-1004's picture

Agreed.  But in addition, brokers need churn.  They need volatility to make gambling worth while.  My broker told me once that "all stocks have a shelf life and the key is to know when that shelf life has run its course".


Solon the Destroyer's picture

A broker that speaks in vague generalities. How unusual.

SIOP's picture

"Since we're dealing with markets that are being manipulated by central bank policies, there is no such thing as economic analysis anymore"

*GASP!* Finally someone actually said it out loud! I imagine all the Cramers and other talking heads would squirm and scream in denial if confronted with this fact.

semperfi's picture

"Since we're dealing with markets ..."

there is no such thing as markets anymore - just casinos

astoriajoe's picture

...there is no such thing as markets anymore - just muppet harvesting.

To me, casinos implies random chance, and that doesn't really seem accurate anymore either.

semperfi's picture

how about "rigged casinos"?  (a redundancy)

Snoopy the Economist's picture

"I think if the stock market falls, which is almost guaranteed to fall sometime between now and year-end, it's almost guaranteed."


Someone should tell him there are no guarantees except...print MOAR!!!!!

Stuck on Zero's picture

We're in a deflationary world?  Has this guy been to a store lately?


shovelhead's picture

The grocery store is worth less but the stuff inside it costs more.

Deflation and inflation. Everybody gets to be right. :)

Buckaroo Banzai's picture

Deflation in the things you want, inflation in the things you need.

Unless you are very rich, then it's also inflation in the things you want (art, classic cars, penthouse apartments on central park, ski chalets in Aspen, etc.).

Temporalist's picture

I heard aapl is removing one of the two cameras on the touch.  Now how am I going to simutaneouly photo my bum and the CB fist being rammed up it?

Yen Cross's picture

     I love silver.

semperfi's picture

"so you have to be diversified"

so, silver  -and-  gold

Yen Cross's picture

 And platinum.  xau & xag would be higher today if it weren't for the lopsided paper shorts. xau should be up $50 today on that dxy selloff. It's early though.

semperfi's picture

and throw in palladium for good measure - outperforming the other 3 as of late

fonzannoon's picture

If I go buy a ASE will that help them have to cover? I'll do it.

Dr. Engali's picture

Don't forget lead which has outperformed evry other asset class.

Yen Cross's picture

    Makes great radiation shielding to.

fuckitall's picture

G&S will be kept in the shitter until US dollar collapses (loses reserve currency status).   At that moment both will skyrocket. 

"moment" might be a day, maybe a week tops.  It will be fast, furious, and massively chaotic.  If you're not in already, you won't be able to get in. 

I'm talking physical.  When USD collapses, paper plays won't matter anymore, they might pay out but it'll be worthless dollars.

"so you have to be diversified"

Bullshit.  Anyone with a pair of working eyes can see what's happening.  Printing and currency debasement.  It's the only real story anymore, and we know how it will end, USD won't be a major currency much longer. 

"Diversified" my ass.  We know exactly what the winners will be, anything physical that most people want, even in an economic depresson, which we'll have around the time USD loses reserve status (hell, we're in one now), and yes G&S will suddenly be in great demand by blind sheep who just woke up in panic.

Yes, it'll be panic.  Unmitigated horrifying panic. 

But everything will be peachy keen right up to that moment.

There's nothing new here.  History is full of examples of this very thing.  And no, it won't be different this time.  It might take a bit longer, but the outcome won't be different.

the grateful unemployed's picture

yeah but gold is better hedge against deflation, if you read between the lines