Gundlach Reveals His Favorite Trade For 2018

One day after Stanley Druckenmiller confessional to CNBC that as a result of central planning and markets that make no sense, the legendary hedge fund manager had a "terrible" year, and his "first down year in currencies ever" (he also said many not very nice things about bitcoin), it was Jeffrey Gundlach's turn to confess some of his more controversial views. And so, the man who two years ago correctly predicted the Trump presidency, first discussed his best investment idea for the new year. To those who listened to his latest DoubleLine investor presentation last week, the answer will hardly be a surprise: namely commodities, because they're "historically, exactly where you want it to be a buy."

"I think investors should add commodities to their portfolios," Gundlach says on CNBC's Halftime Report.

Gundlach said commodities are just as cheap relative to stocks as they were at historical turning points, while the macroeconomic backdrop also supports the case for commodities; he was referring to the following chart which he highlighted last week.

Echoing his presentation from last week, Gundlach said that once "you go into these massive cycles... the repetition is almost eerie. And so if you look at that chart the value in commodities is, historically, exactly where you want it to be a buy."

Investors should add commodities to their portfolios. There is a really remarkable relationship between a market cap or the total return of the s&p 500 and the total return something like the Goldman Sachs commodities index. The cyclicality is really repettiive.

Gundlach also noted that commodities are just as cheap relative to stocks as they were at turning points in previous cycles that began in the 1970s and 1990s. The S&P Goldman Sachs Commodity Index is up 5% this year, versus the S&P 500's 19% gain.

There is also a fundamental case for investing in commodities, Gundlach said. He pointed out that global economic activity is increasing, a tax cut could boost growth and the European Central Bank is implementing "absurd" stimulus policies in the euro zone.

Jeffrey Gundlach: Investors should add commodities to their portfolios from CNBC.

In addition to his favorite trade, Gundlach touched upon several other topics including:

What drives the dollar:

"Short-term fed moves are not what drives the dollar. It correlates much more to what the bond market thinks vis-à-vis the fed say 18 months forward. So if you actually rook at the bond market pricing for 2019 now, there’s a pretty big discrepancy between the bond market and the fed, so that’s going to be really interesting in driving the dollar, and this time i think the bond market is going to be right."

Why the markets are so calm:

"I think it’s because of central bank pegging of rates and quantitative easing going on full bore in  europe and in japan. One of the charts that i love to reference is the nearly linear rise in central bank balance sheet holdings ever since 2011, where the Fed stopped quantitative easing back three years ago, and japan and the ecb just took over the slack, and it’s just a linear rise."


Jeffrey Gundlach: This has been a great year for investors from CNBC.

On ECB president Mario Draghi:

"That’s going to slow things down a little bit, but the real worry from the central bank activity would be forward about a year. Because Mr. Draghi has said astonishingly that they’re going to continue 30 billion euros per month of quantitative easing at least until September and then he threw  in, just to put a cherry on top of the cake of stimulus, he said, and negative rates well past the end of quantitative easing. Which means – sounds to me you’ll have negative rates as long has Mr. Draghi is around which is a little under two years."

On tax cuts and bonds:

"If there is a net tax cut, it has to be bond unfriendly. we already have growing bond supply. we’ve been liiving in a world for the last three years thanks to quantitative easing of negative net bond supply, really, from sovereign bonds in the developing world. and that’s gonna flip because the fed is now letting bonds roll off, the budget deficit is increasing, a tax cut would increase the deficit further, and to the extent that a tax cut might be stimulative to the economy, that’s bond unfriendly, because bonds don’t like economic growth and also it’s more bonds, expanding the deficit, so even more supply."

On tax hikes and risk:

"If i'm correct and i’m going to receive a seven-point bump in my tax rate, which is actually about a 15% tax increase, i have a feeling that i’m probably going to be less able and willing to buy risky assets or buy all the other things that are bubbling up these days, and maybe that side of the narrative will start showing up."

Jeffrey Gundlach: Tax plan could have unintended consequences from CNBC.

On stimulating the economy:

"While we’re not probably going to get 3% real for the year, we’ve had it for two quarters in a row. and gdp now at the atlanta fed has been bouncing around but it’s around 3% for the third quarter. when is the last time we had something like 3% growth for three quarters in a row? it’s a long time. why would you be stimulating the economy?"

Finally on bitcoin:


RealistDuJour Wed, 12/13/2017 - 17:56 Permalink

He also went all in on how awesome bonds would be in 2017... all year long... telling us that bonds would be good... still insisting the market is wrong and HE's right.

GotGalt Wed, 12/13/2017 - 18:12 Permalink

Anybody have a good commodities ETF to buy for an IRA?  (serious not joking)TIPS fund anyone?  I'm thinking of allocating 30% of my IRA to a TIPS ETF.So...30% TIPS20% commodities50% stawksAll other non-retirement funds go to crypto and PMs.

GotGalt buzzsaw99 Wed, 12/13/2017 - 18:43 Permalink

buzzsaw - I hear ya about TIPS performance this past decade+.  Just wasted money.  But I'm sensing a shift here, a whiff that the inflation monster could be raring to get out of control, and .GOV stuffed suits won't be able to hide it with their CPI as before.  Assuming that is the case, TIPS will be much better than investing in a bond fund like TLT, LQD.Stawks - well I already own so not much of a changecryptos - already own so no change therePMs - already own so no change thereReally it is just adjusting how my IRA is invested.  low fee target funds have worked, but again, seems we are approaching a paradigm change.

In reply to by buzzsaw99

buzzsaw99 GotGalt Wed, 12/13/2017 - 19:40 Permalink

Assuming that is the case, TIPS will be much better than investing in a bond fund like TLT, LQD...a definite possibility.  i would almost move out of bonds and back into tips myself early in 2018 because i do expect a buyable dip in bonds and a spike in cpi but...  however...  several things come to mind as to why i probably won't.  1)  i'm lazy.  2)  my timing is sometimes terrible.  while i expect a near term dip in bonds i am actually long term uber bullish and so help me  jebus if the 10Y goes to 1% overnight the day after i move into tips after waiting six years for it to happen i'm afraid i will run my car off the road in anger.  3)  i move slower than a three toed sloth by nature and 4) there are a couple more reasons but i can't think too clearly right now.

In reply to by GotGalt

GotGalt buzzsaw99 Wed, 12/13/2017 - 20:10 Permalink

'while i expect a near term dip in bonds i am actually long term uber bullish and so help me  jebus if the 10Y goes to 1% overnight the day after i move into tips after waiting six years for it to happen i'm afraid i will run my car off the road in anger.' LOL, yeah I see your point there.  But given the incredible correlation between bonds and stawks post 2009, seems like a better actual hedge to stawks is a TIPS fund.  What else would derail this ridiculous bull market of CB bullshit better than inflation really spiking up and forcing those CB clowns to change their ways?  Thus if that happens and stawks actually allowed to drop then TIPS should be flying whereis not sure about bonds.  Would safety trade really work if inflation starts going crazy while 30yr treasuries are at sub 3%?  Not sure about that. So do you know of a decent commodity ETF that doesn't rape one on management fees?  Guess I need to do a bit of homework here.

In reply to by buzzsaw99

buzzsaw99 GotGalt Thu, 12/14/2017 - 05:25 Permalink

So do you know of a decent commodity ETF that doesn't rape one on management fees?  Guess I need to do a bit of homework i don't, but i totally agree about low fees.  it is the first thing i look at.  when it all started to go downhill ten years ago i eliminated everything with > 0.75% fee first, then all the 0.5% too.  imo anything over 0.25% is highway robbery.  i don't know where the hedge funds find people dumb enough to pay 2&20.

In reply to by GotGalt

trillionaire GotGalt Thu, 12/14/2017 - 01:20 Permalink

I'm no expert, but I sometimes look at a few TIPS etfs and the lines on the graph don't always overlay eachother.  There are probably different durations inside them, fees might be part of the divergance too.… I think you'll have to click on each of the colored ticker boxes to add it to the chart, not sure if this will work at all. :)  

In reply to by GotGalt

Scuba Steve Wed, 12/13/2017 - 18:36 Permalink

A Global "Robbing Peter to Pay Paul", not going to end well (Except for Lynn, Sir Evelyn, Sir Jacob & Co. of course).Its so easy to see even a caveman can see it.The aggregate is that global debt rises and 1 currency gets to try and receive the refinancing proceeds using blockchain as its transfer agent.The sovereign nation can still  run/own their own currency at that point but all ledgers get reconciled at Rothschild Empire!No wonder the hobbit that left today said there would never be another financial crisis.

I am a Man I a… Wed, 12/13/2017 - 20:20 Permalink

Somebody show him the S curve and where we are going from early adoption to early mainstream adoption with cryptos.  Commodities, pffffffffffft.  Good luck with that bullshit, been there done that. I do recommend buying the fuck out of some physical silver right now though.  

Harry Lightning Wed, 12/13/2017 - 22:40 Permalink

So Gundlach says that stocks are expensive and commodities are cheap. He also says relatively low bond yields compared to the Fed Funds rate are correct in predicting that the economy will slow. And from all this he concludes that buying commodities makes sense. Its doesn't add up. If the bond market is correct about the economy slowing, then commodities will have less demand and their prices will fall. Additionally stock prices will reflect the slowdown in profit growth and move lower. And cosnidering that stock prices are so much more valued than commodity prices based on the chart Gundlach presented, then if both stock prices and commodity prices are goint to fall a ala the bond market prediction, then the stocks should fall faster then the commodities. Bottom line is for commodities to rise, bond yields now must be wrong, because rising commodity prices imples increasing rates of inflation and bond yields follow the direction of the inflation rate. That's where Gundlach is wrong. Bond yields are too low now and are wrong about the future economic output if commodites are going to rise from here. For a lot of reasons dealing with historical fair value of the bond yields, investors would have a lot better odds in their favor by shorting bonds from these levels as opposed to buying commodities. Howver, if you think the economy is going to slow down in a dramatic way, then the bond market already has priced that move in and the only smart play from here is to sell both stocks and commodities.

Juliette Thu, 12/14/2017 - 00:01 Permalink

Apparent price manipulation through Bitstamp?   Either sth. is broken there .... or they employ artificial price caps which prevent the price of BTC from rising!   On Bitstamp, the price never went above 16,000 ... not even one cent! It was always capped there.   At the same time, the price at other exchanges such as Bitfinex was fluctuating widely from 15,900 to 16,350 USD.  UPDATE: After I published my observations here on ZH, it looks like they disingeniously decided to set a new, "smarter" cap: 16,091.67 USD now instead of the 16,000 round figure before. If this is a price manipulation scheme, they will have to employ smarter tactics in the future ...Currently they seem to have lifted their cap, but their BTC price is still trailing other exchanges like Bitfinex a lot ... which is the whole point of their exercise: Keeping the price of BTC suppressed! Current price on Bitstamp is 16,215 USD, whereas on Bitfinex it is 16,503 USD!

DC Beastie Boy Wed, 12/13/2017 - 23:48 Permalink

Jesus Christ I have to tell all of ZH this

I’m a small business owner in Columbus OH at a bar and we start talking about Bitcoin. Not Cryptos because they have no fucking clue.

The bartender says my Brother is making $2000 a week in Bitcoin. Well, I said he should go into Alts, and he said “what’s an Alt?”

I ordered another Jameson