Doubleline’s Gundlach to AdvisorOne: ‘I’m Just Looking at the Numbers’

In exclusive interview, legendary fixed income manager offers bleak outlook on global policy, returns

“It’s not pessimism; it’s reality. The numbers take you to the answer,” Doubleline Funds’ Jeffrey Gundlach stated empathetically at the outset of an exclusive interview with AdvisorOne on Friday at the Strategic Investment Conference in Carlsbad, Calif.

DoubleLine Capital's Jeffrey Gundlach.Gundlach (left) was reacting to the notion he might be considered a “perma-bear” given the negative outlook he just delivered on the global economy. The conference, jointly hosted by alternative investment firm Altegris and Millennium Wave Investments, was economist-heavy in its speaker lineup, with Gundlach one of the few fund managers to offer insight (PIMCO’s Mohamed El-Erian being another). Nonetheless, a theme among all speakers was a defense against charges they are overly pessimistic, with most countering it was just an honest look at “the numbers.”

“CNBC had a show hosted by David Faber of which I was a part,” Gundlach said. “About the fifth show in he turned to me and said, ‘I think I’ve figured you out; you go with the numbers.’ And that’s exactly it; it’s good to be positive, but people cling to being positive to a fault.”

When debt issues with Greece first surfaced, Gundlach said it took him “about 12 seconds” to realize that the nation was facing default.

“Every person on my team said 'No way, it would not happen.' It was a knee-jerk reaction because no one wants it to happen and the brain can’t get itself around the possibility. But looking at the numbers, there was no possible way Greece could service that debt as a base case scenario and, therefore, something had to give.”

He referred to recent commentary by conference co-sponsor and speaker John Mauldin, president of Millennium Wave Investments. Mauldin referred to Nazi Germany, and the point at which threatened individuals and families decided to leave.

“Half of them never left, despite what they were seeing right before their eyes,” Gundlach said, referring to Mauldin’s piece. “People don’t want to believe the worst.

“All I said are these things are happening,” he added. “Call it pessimism if you like, but you better be prepared for how policy choices now being made will be harmful to what you are doing.”

Specifically referring to said policy decisions, Gundlach said he is “amazed” when commentators say the Fed could possibly raise interest rates in 2012 or 2013.

“The people who say this are so out of touch. Why would the Fed ever do that?”

He then described the current crop of prognosticators as falling into two camps; those that believe current volatility is an aberration and periods of relatively low volatility—like 1995—were the norm. The second camp comprises those that believe the opposite; 1995 was the aberration and more volatility is on the way.

“It’s clear the second camp is winning the argument,” he said.

Moving on to the latest employment report, released Friday, that showed a slight decrease in the unemployment rate widely attributed to a drop in the number of individuals looking for work, Gundlach said it was a bleed-off of the temporary increase in employment due to unseasonably warm weather.

“If unemployment falls below 8%, it will be favorable to Obama’s reelection,” he added, in reference to the upcoming Presidential election.

As to where he is currently finding alpha for his shareholders, Gundlach claimed a classic value play.

“I like things that are out of favor,” he answered. “I like things that are down, like natural gas. This next one will shock you, and I don’t have fundamentals to back it up, but I think speculators should buy the Spanish stock market. A breakup of the eurozone would benefit periphery countries like Spain.”

Speaking recently to a group of investors gathered at the New York Yacht Club, Gundlach said he asked how many in the room owned Apple shares, and almost every hand went up.

“That was amazing to me. Their earnings are impossibly good, so it becomes a classic value play; there is no way they will not disappoint. Then I asked about natural gas, and maybe one hand went up. Yes, a lot of negatives have been mentioned about natural gas lately, but they’ve already been priced in.”

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