Gundlach: "You Should Be Raising Cash Literally Today"

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


Endgame Napoleon totenkopf88 Tue, 06/13/2017 - 23:22 Permalink

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.

In reply to by totenkopf88

GodHelpAmerica Tue, 06/13/2017 - 22:27 Permalink

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"...

gold rubeberg grasha87 Tue, 06/13/2017 - 23:50 Permalink

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!

In reply to by grasha87

WmWallace Tue, 06/13/2017 - 22:40 Permalink

"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...

myorouter Tue, 06/13/2017 - 22:57 Permalink

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

balz Tue, 06/13/2017 - 23:26 Permalink

"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.

GodHelpAmerica Tue, 06/13/2017 - 23:51 Permalink

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.

Calculus99 Wed, 06/14/2017 - 04:21 Permalink

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.) 

Honest John Wed, 06/14/2017 - 07:05 Permalink

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 Wed, 06/14/2017 - 07:56 Permalink

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.