January 15, 2014

Gundlach Looks to ‘Giddily Despised’ Investments in 2014

‘The concept of contrarianism has never had a better setup,’ DoubleLine CEO says

Why zig when you can zag? That’s the general take that DoubleLine CEO and CIO Jeffrey Gundlach shared at the start of his 2014 outlook web call on Tuesday afternoon.

“In my over 30 years in the financial industry, I can’t recall a single year with consensus being so solidified in its thinking across all the asset classes,” Gundlach said.

He referred to what many observers are portraying as a “metaphysical certitude:” interest rates will rise, stock markets will strengthen further, gold will “be a loser,” prices for commodities will go down, the United States will outperform other markets, and the U.S. dollar will strengthen versus other currencies.

Gundlach admits that he does agree with some — but certainly not all — of these views. “The concept of contrarianism has never had a better setup, at least in all the years I can recall,” he said.  

Perhaps his biggest contrarian view is on gold, which he sees as rallying to $1,350 an ounce. “Gold as an asset class is giddily despised,” the investment expert said.

“I like the gold miners, not only as a portfolio diversifier now but as a way to make money,” he added.

Gundlach says Apple (AAPL), which many investors have battered over 2013, trades like an independent asset class and could go to $600.

The tapering of Federal Reserve bond purchases could lead to volatility in S&P 500 and other market indicators, for instance. Plus, high levels of margin debt could signal an overheated stock market.

In 2013, the S&P 500 never broke its 200-day moving average or even got close to it, Gundlach points out.

Though some experts think the yield on the 10-year Treasury could top 3.4% by year-end, the DoubleLine expert sees near-term rates moving down, with yields going as low as 2.5%.

Treasury bonds look kind of cheap versus municipals and high-yield bonds, he says, adding that Treasuries are “tremendously” under-owned.

Noting that the big fixed-income winners so far in 2014 are convertible bonds, which are up 1.5%, Gundlach says the best place recently has been in triple-A rated bonds.

As for overall fund flows, he thinks that mutual funds will move out of the markets in 2014. Plus, with equity profits in 2013, pension plans are likely to rebalance their portfolios by moving money into bonds in 2014 to maintain a 60/40 mix of bonds and equity.

As for currencies, he seems to be sticking with consensus: “I still like dollar,” Gundlach said. It’s “a pretty decent currency to own in 2014.”

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