Gundlach: "Sell Everything, Nothing Here Looks Good"

Two weeks ago, an already bearish Jeff Gundlach appeared to hit the "glass floor" of negative sentiment, and smash right through it.

On July 13, the new bond king said that there is "big money" to be made on the "short side." Gundlach added that he has been selectively betting against shares in the Standard & Poor's 500 index and continues to favor emerging market bonds over high-yield "junk" debt. Gundlach was just as skeptical about bonds, warning that the yield on the 10-year Treasury note at around 1.38% to 1.39% "is a terrible trade location. It is the worst trade location in the history of the 10-year Treasury."

His caution seemed prophetic: it was followed by the biggest two-day spike in 10Y yields in 5 years.  However, just like Gross' infamous "Bund Spike" last May, the selling in TSYs now appears to be over, and following a series of lousy data reports yields are once again sliding.

Jeffrey Gundlach, founder of the $100BN DoubleLine Capital

So has the recent whiplash in bonds and the ongoing levitation in stocks to fresh record highs finally spooked the DoubleLine strategist. Not even close.

As part of his weekly ritual to hold an interview with Reuters' Jen Ablan, Gundlach said on Friday that many asset classes look frothy, which is understandable since the S&P hit an all time high today even as consensus expectations for Q2 earnings slid even more negative, and are now anticipating a 6th consecutive quarter of EPS declines. 

Observing the recent run-up in the S&P while economic growth remains weak and corporate earnings are stagnant, Gundlach said stock investors have entered a “world of uber complacency.” 

 

“The artist Christopher Wool has a word painting, 'Sell the house, sell the car, sell the kids.' That’s exactly how I feel – sell everything. Nothing here looks good,” Gundlach told Reuters in a telephone interview.

Gundlach, who oversees more than $100 billion at Los Angeles-based DoubleLine, said that his firm went "maximum negative" on Treasuries on July 6 when the yield on the benchmark 10-year Treasury note hit 1.32 percent.

That however does not mean he is short. "We never short in our mainline strategies. We also never go to zero Treasuries. We went to lower weightings and change the duration," Gundlach said.

It is also unclear if Gundlach was short equities; what we do know is that he continues to hold (and likely accumulate) gold. He told Reuters that "his firm continues to hold gold, a traditional safe-haven, along with gold miner stocks."