Yesterday afternoon, we presented readers with the latest Jeff Gundlach webcast and presentation, in which the DoubleLine fund manager was surprisingly non-committal in his outlook on the future, predicting no imminent - or even belated - recession and adding there is no risk of a high-yield junk bond "meltdown."
Among other things, the sanguine Gundlach touched on US policy, saying that with healthcare legislation overhaul derailed, U.S. tax cuts will be "really, really hard to get done."
He told Reuters following the webcast that repealing and replacing Obamacare "was always going to be hard to get done. But, yes, the first round failure to repeal is a negative omen" later telling Reuters' Jennifer Ablan that repealing and replacing Obamacare "was always going to be hard to get done. But, yes, the first round failure to repeal is a negative omen."
Gundlach also remarked on one of Wall Street's darlings du jour, namely Tesla, which yesterday surpassed GM briefly in market cap, and which he called a "momentum stock." He told Reuters: "As a car company alone, Tesla is crazy high valuation. As a battery company - one that expands and innovates substantially - maybe the valuation can work."
Gundlach repeated his call for a rally in TSYs, saying “I expect a rally on the 10-year and the 30-year, to below 2-1/4 at a minimum on the 10-year, maybe a little bit lower than 2 and then it moves back up." He added that he doesn't “think we’re going to see 3 on the 10-year this year.”
While much of the above was a rehash of previous discussion topics by Gundlach, he made several notable comments. The first was that his outlook on inflation may be supportive of bonds as "the reflation narrative may be fading" and inflation globally has peaked. "With inflation falling in the months ahead, pressure for higher yields is reduced," Gundlach told Reuters after the webcast. "The bear case will need another narrative because CPI (the consumer price index) will be back below 2 (percent)."
Gundlach said that he still favors non-U.S. stocks over U.S. equities because of the huge run-up in US indexes. As evidence of the overvaluation of US stocks, Gundlach pointed to the outlier signal sent by the Price to Sales ratio in the S&P, which is fast approaching 2 standard deviations from the mean, a level which led to a crash during the dot com bubble.
Finally, while Gundlach said he does not expect a recession, he warned that there is one chart that is ringing alarm bells, namely the ratio of corporate debt as a % of GDP which is now at previous recession highs.
Gundlach's full presentation can be found here.