September 16, 2022
Good morning,
Markets look less than rosy this morning. FedEx shares are down >20% premarket since it pulled its fiscal 2023 earnings forecast on very bleak comments last night. In addition to Amazon and UPS domestically, the FedEx news has weighed heavily on global economies as well. Futures are off about one percent before the open. Today is another quadruple expiration day, the third of four annually, when almost all derivative contracts (options, futures, options on futures …) expire. These are typically volatile days and shouldn’t overly influence the broader trend calculus.
____________________
Our Chief Investment Officer, Stuart Katz, and his Investment Office have a new thought piece out this week; TUG OF WAR BETWEEN TOP-DOWN RATES AND BOTTOM-UP FUNDAMENTALS: RATES ARE WINNING… Click here for the always worthwhile read.
____________________
Jeffrey Gundlach held his quarterly DoubleLine Total Return Webcast last night and as I’m prone to do, a distillation of the Bond King’s comments are below:
• Gundlach said the US has an “addiction” to debt that is slowing economic growth. “Free money” does not make the economy richer; rather it undercuts the standard of living of almost everyone — except those with the levers of power, he says.
• While DoubleLine is keeping an eye on default rates, Gundlach noted that they remain relatively low. “It’s very easy” to build a low-risk bond portfolio that yields 8%, he says. Even one with 12% can be put together with significant potential for capital gains — even up to 15% is possible, he said.
• He expanded on his forecast for “deflation” and pointed out that the Fed essentially let inflation overshoot its expected top of around 4% by almost 5 percentage points. He argued that as the Fed works to take inflation down, it will overshoot just as it overshot on the upside. This environment will be good for bonds.
• He also said the bear market is not over for US stocks, and we’ve seen an echo of the dot-com bust. If earnings growth slows next year, and real-yields go up, that’s a “double whammy” for equities. He is very bullish on EM (debt and equity) but not until the dollar breaks – which is coming.
• Gundlach said he thinks the Fed will raise rates to 4%. They might go “a little” above 4% in the over-tightening scenario.
____________________
Have a good weekend,
Mike