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Bram de Haas
Bram de Haas
Articles (429)  | Author's Website |

Gundlach on the Economy and Markets for 2020

A review of the DoubleLine war able

January 24, 2020 | About:

Jeffrey Gundlach’s firm DoubleLine hosted the first annual “Round Table Prime” with a number of Thought Leaders, including Steven Romick (Trades, Portfolio) of First Pacific Advisors (Trades, Portfolio). In the meeting, they discussed markets, the economy, Fed policies, yields, stock markets and investment opportunities. DoubeLine is hosting videos of the event on YouTube, but I've summarized some of the panel’s takeaways, which were quite thought-provoking.

David Rosenberg

Rosenberg is an economist and consultant. What he views as the biggest risk is employment going down and consumers following the rest of the economy into the tank. That will spur the Fed to cut rates (though there's not much room left to cut). Given that dynamic, he likes long bonds.

Danielle DiMartino Booth

DiMartino Booth of Quill Intelligence is slightly less negative in the near term and believes a Fed hike could re-enter discussions. Consequently, she sees an opportunity to short bonds.

Steven Romick (Trades, Portfolio)

Romick of First Pacific thinks the high yield market is especially curious. High yield is filled with risks. Stocks are much harder to judge because your future returns are all a matter of debate. With bonds, the possible returns are clear. Stocks are much harder to judge, but likely the margin of safety isn’t there. In investment-grade duration went up to eight years. In the market, debt to EBITDA is higher than ever while EBITDA coverage is lower than ever outside of recessions. Inflation is not necessary to upset this apple cart.

There are high yield trades that Romick really likes because of the asymmetry. With some companies, you can go long the secured bonds and short high yield bonds of the same company against them with a positive carry because of the short rebate. Companies he likes for this strategy include Western Digital (WDC), Penn national gaming (PENN) and Gray Television (GDN).

James Bianco

Bianco sees a lot of political risk for the markets and warns not to count out Bernie Sanders. He’s of the opinion that there are a lot of political risks in this market, so he likes to be long bonds. The 10 year could go to 1.5%, and a recession is not necessary for that to happen.

Edward Hyman - Evercore

Hyman also sees a lot of political risk around the election. The Middle East will continue to be a problem for 3-4 months, and China is also a problem. He thinks that people turn even more bullish at the end of bull markets as the market goes from fear to greed. Hyman thinks we are in the middle of that process.

Jeffrey Gundlach

Gundlach believes Double B junk bonds are unbelievably expensive. This class of junk bonds is as unattractive as he has seen it in his career. His primary message is to sell double B and buy the S&P 500 (SPY).

The risks are about the same but the rewards are pretty different. Gundlach also believes oil-related price gains are likely. Like the other commentators, he views Bernie as stronger than people think. He also expects a weaker dollar and stronger gold, and recommends going long on emerging markets.

You can watch the full video here.

Disclosure: no positions

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About the author:

Bram de Haas
Bram de Haas is managing editor of The Special Situations Report and Founder of Starshot Capital B.V.

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