Jeffrey Gundlach Macro Views
Short German Bunds with leverage
USD will continue to be strong
ECB QE will not work
Deflation is a problem, Oil at $30 will bring unintended consequences
Oil will not rebound quality – we will probably stay in a bear market
Gold could rise much in 2015
as of April 2015
Interview with the Bond’s King Jeffrey Gundlach in an interview at CNBC said that “when it comes to what effect the Fed quantitative easing measures or the interest rates tightening…
Jeff Gundlach’s Inverse Duration Bunds Short Jeffrey Gundlach is an investor legend. He is the mind behind Doubleline Capital, a titan in the hedge-fund industry. We have followed most of Jeff’s…
Jeffrey Gundlach is quote worried about the longer-term risks coming from the worldwide monetary policy. That was the message of his latest presentation. “Central banks around the world have put together a…
Jeffrey Gundlach the chief investment officer and CEO of DoubleLine Capital is negative on the future of automakers and especially over the long-run because of the grow of firms that…
Jeffrey is managing one of best -performing bond funds on the trading market. He’s also described as a man with a genuinely original and extremely innovative mind in business. The firm, DoubleLine Capital LP, is one of the fastest-growing mutual fund start-up in the world history.
Others regard him as a prophet, artist, a mathematician and occasional dabbler. Gundlach is a painting enthusiast, a former drummer in a failed rock band, a student of philosophy, a reciter of poetry, a lover of sports automobiles and speed machines and a crossword puzzles addict. He is truly a man of diverse dimensions.
Gundlach is known for his over the top canny comments. Although his pronouncements are often over the top, his intelligence and accuracy in market predictions made it hard to write him off.
Life and Education
Jeffrey Gundlach had ordinary beginnings. Born in 1964, he grew up as an ordinary child in Buffalo, Texas in a middle-class home. His Father was an industrial chemist and his mother was a housewife.
Growing up Gundlach was a bright student scoring near-perfect SATs, which was a good performance back then. He got a four year scholarship at Dartmouth and got summa cum laude in mathematics and philosophy. He then went to Yale for a in a Ph.D. program in theoretical mathematics. He however dropped out before finishing the course.
Gundlach mentions two reasons why he did that. First, he felt his thesis was not right. He felt the topic his topic did not relate to mainstream interests of the Yale mathematics faculty. Secondly, he found the course boring and was getting very restless in school.
He felt the course was too confining not allowing him enough time to pursue other passions. Gundlach therefore decided to drop out and moved to California, where he joined several rock bands. He played with them for a while making peanuts until he went completely broke.
Had he stayed in school, Jeffrey Gundlach would have made a very good professor. He would have become a respectable professor with an intellectual and open mind and his weekend rock gigs would have made him a favorite cool professor among his students. But he chose a different path, which did not seem very promising at the time.
Jeffrey Gundlach wanted to be rich. But seemingly the rock gigs were not paying enough. At that time, in the 80s, money was in investment banking. So got himself an interview with Trust Company of the West (TCW), offered himself as a mathematician for the bank and got hired on the spot. He spent years at the Trust company of the West rising promptly to become manager of a $500-million fund at age 28 , by age 30 he was making a million dollars a year.
Even when the 2007 financial crisis hit devastated hedge funds, his TCW Total Return fund still averaged a 9.1% annually for the consecutively three years. Gundlach had made a name for himself in the investment industry, he seemed irreplaceable.
He was however fired by TCW in 2009 after an interview with Barron’s in a February 2011 cover story referred to him the “King of Bonds. GUNDLACH had become the face of TCW. He was in every press, Television and press briefing concerning the company. He made headlines making canny calls on the then housing market and predicted the stock market 2009 low. However TCW was not very happy. Apparently Gundlach had alienated TCW’s top management including the founder and Chairman Robert Day.
Behind the scenes Gundlach and Day had disagreements about ownership stakes at the firm. Their relations were further strained in 2009 when TCW sold their stake to French bank Société Générale. TCW managers were compensated including Gundlach who was paid approximately $40 million.
TCW ‘s grounds for firing Gundlach were reportedly sited as his tact of running the company which was not approved by top management and he was also considered to be contemptuous of TCW’s new French owners in Paris, who paid close to $1 billion to acquire the firm.
Then things went from bad to worse when it was revealed in 2008 that a bank employee, rendering warrants given to Gundlach and other TCW employees worthless. There was also speculation that Gundlach was planning to leave the firm with some of the best employees in a bid to cripple TCW. So they got him first as Day reportedly said after the ouster of Gundlach.
And Robert Day was right. After Gundlach’s ouster, 40 top employees left with him despite being given fixed income financial incentives to stay at TCW. An estimated $25 billion of TCW’s assets also left with him.
But the biggest blow came when investors backed out of a $5 billion agreement on mortgage –backed funds with hedge fund type fees. The U.S. government pulled out of a $4.4 billion planned Public-Private Investment Program, which was supposed to be managed by Gundlach. The government accused TCW of violating a key provision on the investment agreement.
Doubleline Capital LP
In 2009, soon after exiting TCW, Jeffrey Gundlach founded Doubleline Capital LP with Philip Barach and 14 other employees on Gundlach’s former team at TCW. He and Philip Barach had co-managed a $12 Billion Total Return bond fund at TCW. The firm has its headquarters in Los Angeles, California.
However they were in for a bad start. After the suit was filed, institutional clients went cold on negotiations with DoubleLine and some pulled out of agreements. That year the firm made way less that it had anticipated, only half a billion out of an estimated $20 billion. Gundlach was to later explain that in trade, Institutional gatekeepers avoided doing business with money managers in controversy and especially legal suits.
However Gundlach did not go lying down. He in turn filed a countersuit—and won, collecting unpaid wages for himself and his associates worth $67 million from TCW. After this victory, Gundlach and his team got back to work frantically setting up new mutual funds and attracting new investors. They managed to make $7 billion dollars in their first year, something that was largely attributed to Gundlach’s hard work and intellectuality in delivering results.
To date DoubleLine Capital LP is credited to be the fastest-growing mutual fund start-up in history. The firm’s Total Return Bond Fund has amassed over $50 billion in assets yielding an annual average of 11.50% since its inception.
DoubleLine is centered on quality. It principally avoids pools of subprime securities and debt by backing them by high loan-to-value mortgages. The firm has a preference for prefers borrowers with high credit ratings, which it considers have the ability and desire, to refinance again. This strategy has worked for Doubleline because Pre-payments in the market environment provide a substantial amount of profit. The fund made good trades and got paid 100 cents on a dollar for mortgages that cost 60 cents.
The firm also avoids subordinated-debt tranches, which are often wiped out in restructurings and pools with lots of smaller mortgages, because the high fixed closing costs often deter refinancing of such debt.
These impressive results have been realized principally by trading mortgage-backed securities, of both the guaranteed and the non-guaranteed variety. The Guaranteed varieties are often insured by the government corporations Fannie Mae and Freddie Mac and yield much lower returns.
This makes them more popular in a bearish market season, while the non-guaranteed varieties are issued by banks and financial institutions and often carry more risk. They however yield higher returns when the market is in its bull phase. Dealing with the two varieties has given Gundlach and Doubleline a favorable blend of two portfolios that have always trampled competitors in the investment market.
Opinion On Markets
In spite of his success, Gundlach is not boosterish. He has always had a talent to look at the bigger picture .He is one of the first people to correctly predict the subprime-mortgage debacle of recent years. Lately he has been thinking prophetically again. In the next few year’s he foresees that several national economies will enter into a difficult phase that will force them to default on their national debts and go into receiving further government stimulus-spending as triage. According to Gundlach, this will cause inflation to spike again and create further unprecedented opportunities.
Jeffrey Gundlach’s other views are equally interesting and at most visionary: For example he suggests the abolishment of the fed. Some may not see the wisdom in doing this but following Gundlach’s correct predictions it is only fair that his thoughts are taken seriously.
Gundlach is known for having a flamboyant sense of style: His Los Angeles skyscraper office is covered by Mondrian paintings and other expensive artworks. He is also known for using quotations from the Great Books at meetings and constant self-promotion.
Although these may come off as arrogance to some people, they are mere mannerisms of an individual who is not afraid to speak his mind and call nonsense what it really is.
This trait has made him a rare commodity in the investment industry, he is considered to be a real American original. Ralph Waldo Emerson once described the 51 year old billionaire as a man or a company of men who was plastic and permeable to principles and by the law of nature overpowers and override all cities, nations, rich men, kings and poets.
Jeffrey Gundlach is known for not being shy about offering his opinion about the markets. He is a member of Barron’s round table which delves into investment market discussions. He has been clear that he prefers bonds to stocks. In an interview he said that although he rarely goes public on stock specifics he thinks the Standard & Poor’s 500, which is valued at 1300 will decline to 500 in the next few years. He went on to predict that 2011 was going to be a tough year for equities.
In addition he has not been silent on his view of the bearish times on the US economy. He predicted a rise in government debt. He also does not see treasury-bond yields soaring anytime soon despite the inflation. He says the US economy growth may short circuit if 10 year bonds yield jumps from 3.6% to 4.5%.
Unless a banking panic similar to 2013’s euro-zone’s crisis ensues, Gundlach predicts that a renewed slowdown in the economy would drive 10-year bond yields sharply lower. He also foresees that housing prices will fall by another 10% to 15%.
However he’s opinion on bond-his specialty sectors is much more valuable. Given the conditions of government and combined state finances, Gundlach foresees a major collapse in the municipal-bond market. He has however created a soft cushion to last on. Gundlach has established a joint venture with a RiverNorth-a Chicago financial firm. The joint venture will take up closed-ended municipal-bond funds in the next year or so that when the predicted bond market collapse comes , it will drive fund prices down to as little as 40% of net asset value.
So what makes the $2.7 trillion bond market vulnerable?
According to Jeffrey Gundlach most investors rely on weak psychological underpinnings to predict directions of markets. Most investors in municipals are often wealthy individuals who rush to purchase securities purely because of their tax advantages even though they have little knowledge and understanding of the papers their posses. Gundlach describes them as ‘all-in’ investors are prone to panic and loss when the market goes in a different direction.
Although he says he is not sure whether the market will suffer $10 billion or $30 billion in defaults, he is certain that there will be a panic at the margin, and Muni bonds from the highest-rated on down will fall, in part because other investors tend not to step to invest.
Awards And Honors
In 2011, Institutional Investor magazine named Jeffrey Gundlach its “Money Manager of the Year. The same year a Barron’s magazine cover story referred to him as the “King of Bonds”. Morningstar also nominated the investment superstar “Fixed Income Manager of the Decade” in 2009.
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