Gundlach: Ignore Stocks, "There Is A Stealth Flight To Safety Going On"

Tyler Durden's picture

Not only is the Trump rally over, but stocks are the last to get the memo. That's the current market summary according to DoubleLine's Jeff Gundlach who told Reuters that "there is a stealth flight to safety going on."

Among key indicators, Gundlach pointed to German Bunds and especially Schatz (2Yr), noting that "German bond yields are leading the way down," adding that "Gold is rising." He also warned that "speculators remain massively short bonds and the market is going to squeeze them out."

As we showed last Friday, the yield on German Schatz plunged to a record -0.96%. Earlier that day, Deutsche Bank's Jim Reid said "I've no idea why Bunds are rallying so hard at the moment."

That said, a simple reason for the collapse in German yields may have little to do with political risk or fear of the upcoming European elections, and everything to do with the ECB running out of eligible securities to monetize. As Citi's Jamie Searle calculated last week, the ECB needs to buy around EU80b in 1y-6y German paper by year-end, and as a result traders are merely frontrunning the ECB. As a result, Citi expects that not only will the 2Y tumble below 1% but the 10Y Bund yield will plunge again, dropping as low as -0.10%.

Back in the US, US yields have given up much of their "Trumflation", post-election gains, and on Friday, the 10-year traded at 2.32%, compared with 2.388% late on Thursday. Yields fell as low as 2.313 percent, the lowest since November.

Gundlach, who oversees $101 billion, first introduced his view on the 10-year yield's bottom in January. He then said on an investor webcast: "I think the 10-year Treasury will go below 2.25 percent ... not below 2 percent" before edging up again. As of this moment, we are just 7 basis point away from Gundlach being proven correct again.

As a result of the latest inflation trade unwind, Gundlach said the U.S. Treasury should consider issuing ultra-long-term obligations. "I’d issue the longest maturity Treasuries that the market accepts," Gundlach said. "Start with 40-year, then keep extending if the market allows it. Do 100 if you can get there. The timing is good right now." Of course, the mere hint that the US would so dramatically change its issuance calendar would very likely result in another steep selloff on concerns about duration realignment, and the sudden "unpredictable" shift in the world's deepest and most liquid bond market.

Meanwhile, touching on stocks which soared in the last minute - literally - of trading to close at yet another all time high, Gundlach noted that "stocks are out of sync with the stealth flight to safety. Lots of hope built in."

Back in December, Gundlach said that "the bar was so low on Trump to the point people were expecting markets will go down 80 percent and global depression - and now this guy is the Wizard of Oz and so expectations are high. There's no magic here." So far the magic remains, even if it is on the back of retail investors rushing into ETFs , even as the smart money is selling.

Despite the historical accuracy of Gundlach forecasts, DoubleLine's flagship Total Return Fund (with $54.7 billion in assets) has trailed its peer category so far this year, posting year-to-date returns of 0.70% lagging 73% of its peer category. However, if the like of Goldman are correct, and volatility returns to stocks in the coming days, leading to a wholesale flight to safety into fixed income, we are confident that DoubleLine will fade the gap with his competitors on very short notice.

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knukles's picture

We're just not close enough to Peak Insanity!

Croesus's picture

When I see people queued up to get into the grocery stores, and tanks on the streets...

Escrava Isaura's picture

A Stealth Flight To Safety Going On

Well sir, Mike Whitney begs to differ: The people who believe that Trump is going to defend the “little guy” against the special interests, corporate lobbyists and elitist oligarchy who run this country are going to be pretty disappointed. Behind his widely-ballyhooed public relations campaign aimed at convincing his backers that he’s determined to keep the jobs in the US, Trump is working all the levers to ensure the big money keeps flowing in the same direction it has been for the last 30 years. Upwards.


bamawatson's picture

my neighbor walked over today to show me her new Tactical Rifle Stock

BigFatUglyBubble's picture

Trump wants to make this bubble like one of his real estate projects: as big and grandiose as possible.

Miss Informed's picture

Everything about Donald is epic. His last fall from grace was humongous if I remember right.

Paul Kersey's picture

The Great Florida Land Boom bubble burst in 1925. Four years later, the stock market crashed. In late 2007, we had the beginning of the sub-prime/liar loan real estate crash. By 2008, the stock market crashed. If this is a pattern, then we need to keep our eyes on the real estate market.

iwalkonwater's picture

Trump has brought the markets to where they really should have been. Under Obama the markets were supressed and all that is happening now is investors feel safe that the markets have been reopend and that regulations will be removed that once strangled the economy. Boom time are here . If the market has increased by 12% since Nov 8 they will still rise at least another 8% and that is where the market should always have been. What increases occur after that can be truly attributted to the new Trump policies.

Prediction by the end of this year the dow will reach 23,000.

Giant Meteor's picture

I disagree! The markets got all euphoric on acid. Started hallucinating, badly. Sure, sure there was lots of political rhetoric how everything was a fraud and a bubble (true) and then there was more rhetoric, making America Great Again, doing all sorts of neato stuff, a bullshitting of the bullshitters so to speak.

Dear old dad used to tell me, "Giant Meteor, you can't bullshit a bullshitter!" Now, after watching this shit show, I realize dad was bullshitting too, because sure as hell, the don has masterfully bullshitted the bullshitters!

But seriously, why wouldn't fraud markets, with fraud "valuations" , faked numbers, and oodles of companies that do not make bank, why would those markets not love the idea, of a bullshitter in chief!?  ..  No reason I can think of ..



Chris88's picture

Now complete the idiocy and call him a "bankster".

Sudden Debt's picture

Every day that I see the DOW rise I wonder who's buying.

Are there any ZH'rs who are buying stocks at these levels?

Giant Meteor's picture

I have noticed an "ominous" quiet on financial threads. Its probably nothing ...

ceilidh_trail's picture

I note the same. Excellent comment.

Ignorance is bliss's picture

401K investors. The boomers are maxing out their 401Ks. They're thinking about those warm Florida breezes.

scintillator9's picture

The boomers I know who are employed ask me how in the world "the market" is rising each and every day, inexorably to the heavens, yet their 401(k) balance seems to remain static. Their pay has also remained static for about a decade, and swear they were better off 20 years ago when they made less.

Other boomers I know who retired a while ago have been forced to become grocery store clerks and take on 2nd jobs due to their $1,500 per month pension was cut to $500 per month. Their expenses, such as property taxes, food, fuel, etc, were not cut by 2/3 unfortunately, nor have they gotten any interest for about a DECADE on their CD's.

Then there are the boomers I have heard about, who reach age 70 1/2 and are required to take distributions from their IRA's.

A friend of mine has a theory, that since our "Wall Street Friends" cannot LOSE a single cent, to make up for ANY withdrawals from "the market", the operators of it must keep pushing it up to gain back what was "lost". Again, just a theory.

Fun times, Dead ahead.

FreeShitter's picture

Most boomers are living like the rest of us, by the skin of their teeth....

Erek's picture

Don't you mean by the skin of their children's teeth?

Dilluminati's picture

If you are in an age appropriate portfolio there is a high investment mix to bonds which if they are not junk are doing about 1% a year since ZIRP and QE.   So really the bank bailout was a huge transfer of wealth from savers to the global elites.

This is why there is damn sure going to be change in Europe, it is worse there than in the US.


Ignorance is bliss's picture

I'm a GenXer...I give my parents (boomers) $500 monthly so they are not forced to live on cat food. Wish I could do more.

scintillator9's picture

One is doing more than many others who can.

Dilluminati's picture

401K's at what age?

If you are mid 50's you might look around and ask, if all the baby boomers get the same bright idea to retire at the same time?  Markets at all time highs and up 25% YTD and I'm age correctly contributing.. hmmm...

I'd say even if your younger exiting and awaiting a correction or re-allocating to some very conservative fund.   Part of what is pushing the market higher is capital flight from EU and Asia and former BRICS.  They are not watching the US media nor drinkin koolaid, they look around and rush to the German bond...


Erek's picture

"The boomers are maxing out their 401Ks. They're thinking about those warm Florida breezes."

Those warm breezes can turn into a full-blown hurricane real fast.

Chris88's picture

They aren't bad mouthing the joke levels of the market because their clown is in power now.

buzzsaw99's picture

i am buying all the things. literally.

nothingtoseehere's picture

Not buying all the things, but buying many of the nice things.  Literally.

Hillarys Server's picture

I don't know how to play the fiddle, so I bought a 14 karat gold slinky so I can eat popcorn and play with my gold slinky while the world burns.

Lore's picture

It's Fed fraud, like the sad little boy with a lemonade stand who had no customers and 'faked it' by drinking his own product and donating his own allowance into the tip jar.  NOBODY ELSE IS BUYING (see past discussion re: BLICS).  Somewhere, there's a beautiful chart that shows QE and the exchanges moving more-or-less in tandem...

Everything is being manipulated. Finding an honest market report these days is like seeking truth in Plato's Allegory of the Cave. 

Why the hell would anybody buy long-duration Fixed Income now, at this juncture?!?  You might as well dodge turds by hiding at the bottom of a toilet.  Fuck these people.

SgtShaftoe's picture

Absolutely not. The only stocks I own are gold miners. Most of my attention is in garden prep right now: fencing, mulch, weed barrier and irrigation layout. We're going to have the largest, highest density garden we've ever done this year. Our garden will be about an Acre but higher density than we've ever done.

We're starting seeds like mad right now. We have 3 tented wire shelves currently and will likely have another before the week is over.

Physical security is also on my mind, not my own necessarily, I think we have a pretty good situation now that will tighten as things get more sporty. I'm interested and contemplating the market opportunity for physical security. As things start to unravel crime will go up. I've already experienced it just last week where a situation started moving to the realm of gunfighting with a few douchebags but was able to interrupt and de-escalate it. Things are getting worse by the day across the country. SHTF is now and much more is in the hopper to hit the rotating blades.

Butchard's picture

Purely institutional investors to include fund managers. Most individuals are savvy enough at this point to not be in this absurd bubble market.

max2205's picture

Fed buys any price 

Rufus Temblor's picture

And then they have the nerve to deny they're guilty of currency manipulation.

Chris88's picture

As usual Gundlach is spot on.

TwoHoot's picture

"speculators remain massively short bonds ...

is just another way of saying commercial intersts are massively long bonds.

The question is: Who blinks first?

Yen Cross's picture

  Totally agree with Gundlach. You can see it in F/X.

DirtySanchez's picture

If you're in the mood to listen to someone with a very good head on his shoulders, Gundlach is top 10.

No one goes broke taking his advice.

masons's picture

fuck him, he is a jerk like everybody, i rest my case

Chris88's picture

Cause he doesn't push a wheelbarrow for a living?

Paul Kersey's picture

"fuck him, he is a jerk like everybody, i rest my case"

Is that, per chance, a case of anal warts?

masons's picture

you guys should only listen to PIZZA face , Martin Armstrong, he is never wrong, never right, , never up , never down, nowhere to be found in between

milo_hoffman's picture

As of two weeks ago, now am 0% equities or bonds, and went to  50% cash, 30% metals, and about 20% QQ shorts.

Rufus Temblor's picture

The CBs are in the business of defrauding savers. Hardworking nonfinancial types nearing retirement are the last to figure this out. They are easy marks for the financial elites.

mosfet's picture

I have a theory.  Maybe in March Yellen hikes rates and claims the Fed intends to do 2 or 3 more this year.  Then during next ECB meeting Draghi says they want to taper out all stimulus sooner.  EU and US markets tank and all the CBs use the sell-off to shift the blame onto the electing of populist canidates.  The French chicken out and don't vote for Le Pen.  Then Yellen & Draghi pop out with no more rate hikes and moar free money.  It's just a working theory.

Kefeer's picture

As good as anyone's guess.