Jeff Gundlach has basically gone full contrarian for 2014.
In a webcast earlier today, the bond fund veteran expressed views that are effectively the opposite of what the consensus expects.
Wall Street sees healthy gains for the S&P 500, but Gundlach expects volatility as the Federal Reserve tapers its extraordinary stimulus. He also said record high margin debt levels suggest the stock market may be topping.
Economists expect tapering to push interest rates higher with the 10-year Treasury yield heading above 3.4% in the fourth quarter. Gundlach thinks that rates head lower at least in the near-term. He thinks the 10-year Treasury yield topped out at 3% and could go as low as 2.5%.
Everybody hates gold and the gold miners. But Gundlach thinks that’s where money can be made. The median forecaster sees the yellow metal falling to $US1,220/oz this year. He sees gold rallying to $US1,350/oz.
Emerging markets face all kinds of headwinds ranging from inflation to falling currencies to slowing growth. “The value proposition is much more attractive than people say,” he said as he noted the forecasters have been a year late on this story.
Gundlach also said that Chipotle should drop 30%, Apple could go to $US600, Bitcoin will fall further, and Puerto Rican and JC Penney debt are money-makers for anyone willing to stomach tons of volatility.
As usual, Gundlach supported all of his views with a brief presentation featuring his hand-picked charts. Anyone who wants to understand how he thinks should spend a few minutes on these.
Cullen Roche, Pragmatic Capitalism writes:
Jeff Gundlach: "The Ultimate Pain Trade"
Jeff Gundlach has been laying out his view for 2014 in a presentation this afternoon. As you can likely guess, he’s not super bullish on equities given the huge rise from 2013 and cites many of the common risks of late (sentiment, valuations, anomalies, etc).
But the most interesting part of his presentation is something that I’ve been thinking about lately. He refers to long bonds as the “ultimate pain trade”. Gundlach says the supply of t-bonds has been reduced due to QE and that the very negative sentiment and short position in t-bonds has set the table for the potential for a short squeeze in government bonds. I think he’s dead right. If the economy surprises to the downside in 2014 then the flight to safety trade is government bonds.
Gundlach says:
- 10 year yields could see 2.5% in 2014.
- “I would NOT have a 0% bond allocation in a diversified fund.”
