Following The "Sell-Off" Gundlach Is Starting To Buy Treasuries

Tyler Durden's picture

This afternoon Jeffrey Gundlach held one of his periodic interviews with Reuters' Jennifer Ablan in which he said that the selloff in Treasuries is over and that investors looking to purchase Treasuries in the wake of the bond market's sell-off - if one can call a move in the 10Y to 1.91% a selloff - are making a prudent move. "I think it is a reasonable strategy to start legging into the Treasury market."

To be sure, he is talking his book, but at least he is honest about it: "We've been buying a little bit today ... we bought a small amount of guaranteed mortgages, particularly Freddie Mac MBS."

What about equity investors? Gundlach said that investors who want to purchase equities at this juncture should consider non-U.S. stocks. "They are down more than U.S. stocks. If U.S. equities go higher, it would seem very implausible that other markets would not participate in the rally even more." 

Gundlach, who runs $95 billion at DoubleLine, said he does not expect much from the latest Federal Reserve meeting but does expect somewhat "hawkish" language about the potential for hikes at meetings later this year.  Instead he believes, as do we since 2013, that the next major easing step is also the final one: Gundlach suggested that a "helicopter money" drop could be the government's next big monetary and fiscal move to stimulate the U.S. economy.

"Helicopter money is going to happen," he said.

Gundlach's track record has so far been mostly impeccable: last year, Gundlach correctly predicted that oil prices would plunge, junk bonds would live up to their name and China's slowing economy would pressure emerging markets. In 2014, Gundlach correctly forecast U.S. Treasury yields would fall, not rise as many others had expected.

So if it is not the Fed, then what does spook him?

Last month, Gundlach told Reuters that he foresees a "global growth scare" between now and the end of the summer, triggered by a presidential nomination of Donald Trump.

Trump's protectionist policies could mean negative global growth, Gundlach warned. "As he gets the nomination, the markets and investors are going to worry about it more. You will see a downgrading of global growth based on geopolitical risks. You must factor this into your risk-management."

Which is ironic because as we reported last Friday, Gundlach also sees Trump as being the next president, and a good one at that.

Trump is going to win. I think Clinton and Sanders are both very poor candidates. I know the polls are signaling the opposite. But the polls said the opposite four years ago, too.

 

In the short term, Trump winning would be probably very positive for the economy. He says a lot of contradictory things and things that are not very specific. But he does say that he will build up the military and that he will build a wall at the border to Mexiko. If he wins he’s got at least to try those things. Also, he might initiate a big infrastructure program. What’s his campaign slogan? Make America great again. What that means is let’s go back to the past, let’s go back to the 1960s economy. So he might spend a lot of money on airports, roads and weapons. I think Trump would run up a huge deficit. Trump is very comfortable with debt. He’s a debt guy. His whole business has had a lot of debt over time and he has gone bankrupt with several enterprises. So I think you could have a debt-fuelled boom. But the overall debt level is already so high that you start to wonder what would happen after that.

It remains to be seen if Gundlach is right about bonds or stocks, but when it comes to Trump, as of moments ago, he is well on his way with a clean sweep in the entire "Amtrak Primary", winning all five contested states.

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0Theorem's picture

A "Debt fueled boom", eh? Didn't we try that? "Refinancing the house- again- for new furniture spending?"

38BWD22's picture

 

 

I have not been carefully following Gundlach, but I see him here at ZH as well at Barron's.  Tyler above says how recent record is very good, well, we'll see.

I suspect he is right about Trump, it seems that he will win.

I'll have to track down his position on the yellow shiny stuff..

Clockwork Orange's picture

Gundlach is talking his book. 

IF Trump is the real deal, and not the Hope & Change Model v2, there is not a sector in the S&P that would not want to cap his ass post haste.  1) Favored nation status on pharma, 2) repeal the gang rape of the middle class that is Obamacare, er, pardon me 'Affordable Care', 3) Knock China around on their currency pegs ... bring jobs back to U.S. = shrinking margins for all multi-national globalist fascist whore S&P 500 companies, 4) shit-can Yellen and audit the Fed (Wrong assumption on debt, Trump uses it because he'd be stupid not to at 2%, he cannot get rid of it fast enough) ... and on and on.

Hence, if he is still walking, PAIN for the markets short term, good results longer term.

The cabal does not want the latter.  They are more than happy to whip out the financial-terrorism market-beatdown machine to extort whatever they need in the short term.

Puts/Leverage shorts early, Calls/Leverage longs later.

Go Trump anyway.  2016.  Fix it, or bust (then, if bust, hang the bankers ... all of them Sr VP on up, then fix it)

 

 

nink's picture

Do as I say not as I .. Anyway BTFD

ATM's picture

The 10 year is going to 1%. How can it not with Germany, Japan going negative?

John Kich's picture

Obama will not finish his second term! Banned independent documentary reveals the truth. This will scare millions!

https://www.youtube.com/watch?v=K8VdXZ_bi7M

bunnyswanson's picture

All one would be required to do in order to bring about a solution to the financial calamity is hold a key individual in a room with a gun to his head and say:  "If we fall, you fall too." 

pitz's picture

Trump's policies appear to be very pro-growth to me.  Sending the H-1B's packing back to India will generate growth in both America, and India.  In America by putting Americans back to work in the tech and IT sectors.  In India by giving India an science and engineering workforce that will agitate for economic modernization (that hopefully involves importing US-made goods and services!).

i_call_you_my_base's picture

H1Bs are cheap labor. They can't switch companies and will take any pay to get out of India. I think it's the right thing to do, but it'll mean less profit for companies. Edit: ...in the short run. Long term, I agree with you.

pitz's picture

No it will mean more profit for companies as they will be able to increase their rates knowing that their competitors can't undercut them by using H-1B's of their own.  H-1B has created a situation of significant price deflation in the technology sector, and basically a race for the bottom. 

Further, the "price" of H-1B's might be low, but their value is low as well in terms of quality. 

The tech sector is sitting on so much cash at the moment that the government could ban the H-1B visa and it wouldn't be a major hit at all. 

 

 

i_call_you_my_base's picture

I agree about the quality...

But there is also a price expectation baked in and a price attached to the downstream product. There would have to be an increase in wages and an increase in prices in excess of the original margin. I doubt both would net out positive for the company.

pitz's picture

Putting a lot of very high quality, yet unemployed techies back to work would definitely help the economy.  And the pricing power these individuals in the labour market would have would create a competitive counterweight to the bloated financial sector.  This definitely would net out positive for the firms involved.

Many firms don't want to use H-1B's but are basically forced into using them (and outsourcing) because their competitors are.  So an across-the-board ban (ie: cancelling the visa outright) basically shuts that all down. 

The "losers" of course would be those who have been enjoying cheap/almost free technology.  They would actually have to start paying what it really costs. 

 

 

i_call_you_my_base's picture

I think you're right over the long-term, but short-term there would be transition and training costs and I don't think people will be able to just push that through to the product or customer without some loss.

pitz's picture

Transition costs should be minimal.  Just tell them to pack their bags and leave.  Americans are already trained for most of the jobs.  2/3rds of STEM degree holders can't find STEM jobs.  So no shortages of trained people.  Firms already are spending $$ on in-house proprietary training for the H-1B's, so it shouldn't present an incremental cost to provide proprietary training to US citizens versus foreigners on H-1B visas.

i_call_you_my_base's picture

This I don't agree with. Things are not that simple. The way systems and software work are built up over time and often require subject matter expertise. As a practical matter, documentation is never good enough and usually a few key people internally know how things work. Losing a key person that knows the lay out and understands the systems, communications, etc, can be extraordinarily painful.

pitz's picture

Well in that case, the employers have only themselves to blame for putting key proprietary details in the hands of people whose legal work authorization in the United States is temporary at best.   Or mismanaging their systems so that so much detail is vested with a single or a small group of people to whom they are beholden. 

In reality, most companies with such kinds of systems do maintain a US citizen capability in those subject matter expertise areas, just in case a problem arises with visa issuance, contractual dispute with outsourcing providers, etc.  In rare cases where there's truly top talent needed which cannot be obtained in the Citizen talent pool, the O-1 visa can be used as well.

i_call_you_my_base's picture

You're right, it is their fault, but I've seen it many times in many sectors, even in large financial firms. They cycle employees, and what the last person built becomes a black box and no one knows how it does what it does. Things run for a long time until something else changes.

In any case, thanks for the conversation. I think we mostly agree, save maybe what the cost would be and how much of that can be pushed out to the buyer. Like I say below, personally I hope it does happen, and I do think it's a big net-positive for the US. I've thought so for a long time.

fxrxexexdxoxmx's picture

The new management plan- fire/retire/move a couple of hundred years of experience  and then transfer their responsibilities to co-workers who have no experience with that subject matter.

But you better not do any overtime studing the subject matter. Find the time in between the seconds that are currently being tracked. That's o.k. we been G.I.G.O.  on metrics since the first one was introduced. I will pad my numbers into a an area that everyone forgot, and then when those numbers do not jive, I will do it again in another. To bad every fucking metric in the system has beened G.I.G.O. and you have no honest base line, idiots.

i_call_you_my_base's picture

It depends on what you mean by "tech sector". If you're talking about silicon valley companies, yes, but I'm talking about the technology services sector overall, the giant sector in support of other businesses.

pitz's picture

I'm talking about all of the H-1B-using tech sector.  It has experienced significant deflationary, profit-sapping pressures on account of the H-1B visa.  Trump proposes to cancel that, which should remove much of the downwards pressure from pricing.

i_call_you_my_base's picture

I do agree with you. And would personally benefit from it. I work for a technology company with 100% US workers.

pitz's picture

Then it should help not only you but your company to have your competition prohibited from using non-US workers.  You should be able to raise your prices on your personal labour.  Your company should be able to raise its prices.  H-1B should be thought of as a giant labour and corporate profit suppression system in support of the banksters who make most of their money when people are highly dependant on lots of credit, rather than earnings for survival. 

 

For instance, tech wages have stagnated severely, while asset prices have been propped to the moon in the Silicon Valley.   The H-1B visa has accomplished both.  The big winners are the banker-types who get to write large mortgages to the tech sector workers, instead of the tech workers buying houses outright with either cash savings, or smaller mortgages. 

booboo's picture

Listening to a radio show yesterday and the host t was breathlessly panting how protectionism will force the Iphone to cost 1000 dollars to which I thought oh fucking well, if people want one bad enough so be it but I think smart phones for the most part are a business tool and teeny boppers and soccer moms running around with them only clog up the ether but I'm a grumpy old business man and have apps that would bore the fuck out of most since I quit kindergarten on account of recess, I don't play games.

pitz's picture

An iPhone might cost $1000, but people are far more likely to have jobs that they'll be able to afford to pay $1000 for an iPhone.  I would not be scared of a $1000 iPhone at all. 

TrustbutVerify's picture

Any attempt to get off the monetary heroin and back on a reasonable economic track will very difficult and once sucessful change has taken place the plan will have to be adhered to for decades.  

Imagine if we had taken our medicine in 2008 and 2009.  It would all be so over now.  Now, the fix will be magnitudes tougher when it comes - and it will come. 

Bunga Bunga's picture
Spain faces new elections, parties fail to form a government

http://www.theguardian.com/world/2016/apr/26/spain-faces-new-elections-j...

Panama papers will help Podemos

Spain’s Industry Minister Steps Down Over Panama Papers Revelations

http://www.nytimes.com/2016/04/16/world/europe/panama-papers-spain.html?...

38BWD22's picture

 

 

Like Europe needs more Leftists...

I wonder Podemos has to say about Moroccans, etc.

Looks like Europe is at least full of corruption as the USA is.  At least.

Clowns on Acid's picture

Bonds ? SELL and hold. Duh ....

Colonel Klink's picture

Jeffrey Grundle, meh.