Jeff Gundlach, the savvy bond manager at DoubleLine and the only bond manager who consistently outperforms Bill Gross, says the de facto interest rate tightening of the last few weeks is unsustainable. In a conference call with investors yesterday Mr. Gundlach detailed his outlook. Gundlach believes the higher interest rates will weigh on the debt burdened nation:
“I don’t think the economy can take much of a rate rise above 3.5 percent….The economy, society and government are fueled by debt.”
Gundlach believes we have catapulted from one extreme to another as investors, who were quick to hedge against deflation in August, are now overly optimistic about inflation. Gundlach believes the current environment remains more likely to lead to deflation than inflation in the next two years:
“Deflation is more likely in the next 24 months.”
Ultimately, he sees the current sell-off in bonds as a buying opportunity.
“This is not the time to be selling bonds and buying stocks. This is the time to do the opposite.”
Mr. Gundlach’s newly formed DoubleLine Total Return Fund is up 9.7% since its inception earlier this year. This is an annualized equivalent of 13.7%. A review of the Total Return fund’s holdings show a similar approach to that of Bill Gross described earlier this year. Gundlach’s funds are primarily invested in government agency obligations and CMOs.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.