January 11, 2023
Good morning,
My apologies in advance, this morning’s note is unusually packed. Just a coincidence of time, but as always, please call me with any questions whatsoever.
Jeffrey Gundlach (DoubleLine) conducted his annual Just Markets webinar last night. While he is an extraordinary fixed income manager, Just Markets is the one time a year he commits to interpreting the message coming from all markets – bonds, stocks, commodities, and currency. Key takeaways (Bloomberg):
• Gundlach called 2022 the worst of his career in fixed income, adding that bank loans became his “least favorite” asset class.
• But bonds, in general, are more attractive than equities, he said. He recommended a portfolio that is 60% bonds and 40% equities, rather than the more traditional 60/40 mix that allocates the bigger share to stocks.
• As for housing, Gundlach said it’s “not saving the economy in 2023.” While prices are coming down, they still remain elevated compared to three years ago, he added.
• Gundlach also urged investors to look at what the market indicates over what the Fed says. He thinks rates have peaked and that the Fed will not get beyond 5%. He pointed out how markets remain skeptical even after several Fed officials signaled they would lift their policy target — currently a range of 4.25% to 4.5% — to more than 5%. (this was his most salient observation)
• He also drew attention to the inversion of the Treasury yield curve, which has successfully predicted economic slumps in the past. Inverted yield curves have always led to recession in relatively short order, he noted, adding that “there is tremendous upside in many bond strategies.”
• He is once again bullish on gold, especially closer to $1800/oz (currently $1880).
• He continues to be bullish on international and especially emerging market stocks vs the S&P 500
• He continues to believe the U.S. dollar has peaked
Be well,
Mike