Gundlach: "You Should Be Raising Cash Literally Today"

Tyler Durden's picture

While there was nothing markedly new from Jeff Gundlach in his latest monthly webcast, it appeared that the DoubleLine CEO either had just read or otherwise agreed completely with JPM's Marko Kolanovic, who as we noted earlier, warned that even a modest spike in vol coupled with a plunge in liquidity, could lead to "catastrophic losses" for the year's best performing strategy: short convexity, or otherwise selling volatility. Recall what JPM said.

May 17th and similar events bring substantial risk for short volatility strategies. Given the low starting point of the VIX, these strategies are at risk of catastrophic losses. For some strategies, this would happen if the VIX increases from ~10 to only ~20 (not far from the historical average level for VIX). While historically such an increase never happened, we think that this time may be different and sudden increases of that magnitude are possible. One scenario would be of e.g. VIX increasing from ~10 to ~15, followed by a collapse in liquidity given the market’s knowledge that certain structures need to cover short positions.

A few hours later, in not so many words, Gundlach made the same warning during the webcast, in which he - like Gandalf - warned that "we're on increasing watch for volatility," Gundlach said, pointing out that "there is a massive amount of money that is being short VIX."

"It's a trade that's made a lot of money and its very very crowded, which suggests to me the days of low volatility are numbered," he said. We "probably won't see it continue through year end."

What does the above mean in trading terms? "If you're a trader or a speculator I think you should be raising cash today literally today. If you're an investor you can easily sit through a seasonally weak period," Gundlach repeated that while he does not expect a recession any time soon, he does anticipate a summer correction in S&P.

Aside from an imminent vol spike, Gundlach also went off on a political tangent and summarized his views on the ongoing drama in DC, saying "the establishment: in Washington is trying to undermine Trump by running out the clock on his administration. “They’re really just trying to wait Trump out, trying to obstruct his agenda as much as possible,” Gundlach said quoted by Bloomberg. “Small change is what they’re looking for.”

Speaking during the Sessions testimony, he called the political charade taking place in DC “a sideshow or entertainment" and said the US political conflict is “rope-a-dope,” after the strategy used by Muhammad Ali to wear out opponents. It remains to be seen if the Democrats, or Trump, win this particular boxing match.

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Finally for those who missed it, here is Gundlach's full slideshow

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xtremers9's picture

I completely agree. The bull market isn't over yet. Valuations aren't as rich as they were at previous bull market tops. But a correction is bound to happen within the next few months. Buy the dip.

Zorba's idea's picture

corrections, may be, 10 will get you 20...20 could get you 40 or more. The FED's appetite for asset extraction will bite mainstreet a lot harder than wall street...when the day comes

abyssinian's picture

Get out of cash any get in gold silver Ethereum and bitcoin

kahunabear's picture

A big money manager who thinks for himself, makes bold calls and has a great track record.

xtremers9's picture

Jeff is definitely one of the best. He's great on the bond market and good on the stock market. His gold calls have often been wrong.

order66's picture

He also said no recession, no deflation and buy SPX ahead of the Fed tomorrow.

totenkopf88's picture

So- negative GDP when inflation is taken into account is not a recession? Not counting the trillions in debt added since 2009?

Endgame Napoleon's picture

And, for sure, the millions of out-of-the-workforce and UNDERemployed citizens, working part-time, temp and churn jobs, with those whose wombs can churn out kids out of wedlock getting their monthly bills paid and child taxfare checks that equal 4 months of wages for those who don't, don't count for such dudes. It is beyond a recession for millions of US citizens.

GodHelpAmerica's picture

These guys are good for a while and then they're not...and that's usually as one paradigm changes to the next.

I think gundlach is overlooking some pretty telling signs and is defaulting to "what has happened before (in this cycle) will happen again"...

grasha87's picture

Jim Rickards has echoed Donald Trump in his distaste for free trade and comparative advantage in his book The Road to Ruin. Here's why they are both wrong:

gold rubeberg's picture

The problem with free trade and comparative advantage is that they apply just as well at the individual level as the international, but policymakers have been acting as though it were solely international.

So we get free market religion on trade that crosses a national border while trade between you and the guy across the street is subject to suffocating taxation and regulation. It's time to restore some balance.

Free trade begins at home!

BigCumulusClouds's picture

Jim Rickards thinks a devalued currency improves exports. Fool. I get his newsletter. I have yet to see a good stick pick. His llatest recommendation was a gold stock ETF. Heck the guy can't even sort out the best gold stocks for you. Do he tells you to buy a derivative.

Lost in translation's picture

I think Rickards is as crooked as Hell; in the interest of open-mindedness, however, I'm reading his book, "Currency Wars."

So far, it's just ok. Nothing fantastic.

WmWallace's picture

"there is a massive amount of money that is being short VIX."

How much of this is from the Fed and Fed surrogates manipulating the market?

There are usually hard consequences when one gets caught cheating at the poker game...

Liber Hater's picture

That is actually a lie. But you know that.

finametrics's picture

Weren't there murmurs recently about banks manipulating VIX? Would they take a hit?

myorouter's picture

This is another article speculating on the VIX.  Every week they come out with one of these. NONE of them are ever right.

The guys at shepwave have the vix down to a science. Well that is true for the stock markets and gold too so go figure. 

I think they still show some trades on their blog for non members

Liber Hater's picture

Gundlach is all over the map. Stick with the S wave analysts. Their timing will be the closest anyway. 

Lost in translation's picture

Coming up next:

ShepWave shills circle-jerk to Brokeback Mountain in HD.

mily's picture

It's impossible to be more cheesy than that

balz's picture

"If you're a trader or a speculator I think you should be raising cash today literally today. If you're an investor you can easily sit through a seasonally weak period," Gundlach repeated.

Read that sentence again and if you're in the market for the good reasons, you can sleep well.

Spine of Ruprecht's picture

'Depends on your definition of cash, Mr. Gundlach.


Gotta laugh when the shills call Fiat "hard currency"......

gold rubeberg's picture

There will be a correction in stocks 2017 Q3, but we'll have to wait until 2018 for a bear market.

GodHelpAmerica's picture

If i had someone managing my money who told they were forecasting a 6% "healthy" nominal int rate on the 10 yr, I'd withdraw my money immediately.

Gundlach has been drinking kool-aid since Trump got elected.

Richard Head's picture

Can someone please get him a suit that costs more than $99?

BigCumulusClouds's picture

Yes raise cash so you can watch it turn to shit. What every sane person needs to do is raise hard assets that can't be taxed

Lost in translation's picture

I'm not fond of paper. How about crates of 7,62 instead?

Calculus99's picture

Humans never learn. 

Selling vol is a great way to make money, almost seemingly free, until it stops. 

When I was a broker we had many clients like this over the years. Made lots of cash, hubris took over, markets made a big sudden move (as they always do) and boom, we were closing out their positions at market and in some cases asking for cash. 

(I always remember looking at their daily P&L when it was working, it was like a money tree, just dumping piles of it in their accounts.)


buzzsaw99's picture

yes, you will need cash to btfd at 2:06 today.

Honest John's picture

It appears that every major player is liquidating, raising cash.  Smart move, right?  But selling does not cause the markets to go down.  Why?  Central banks are buying (I assume).  End result?  When the markets crash, Central Banks will default, paper money worthless.  Once again, those who did it right get screwed.  We are in a no-win world.

PeeramidIdeologies's picture

It's a great day to raise cash because it is a great day to rotate into cash. Look around, things aren't starting to unravel they are unraveled, threads alone holding things together.
Russian is the only country that appears to have things on an even keel, mostly due to the fact that they are able to openly beat people in the streets but I digress..

It is a great day to get out of conventional assets. Cash, gold (prices are great), crypto's (not the overpriced one), local business, a backhoe, water truck, or mitre saw for fuk sakes
are far more attractive than dancing on the knife's edge know as the "markets" today.

This summer is going to get ugly folks. Hedge accordingly.