Ahead of the Federal Reserve's increase Wednesday in interest rates, DoubleLine CEO and Chief Investment Officer Jeffrey Gundlach said another hike in 2017 was in doubt.
Opinion appears “divided on a [third] hike in the second half of the year, and the market is a bit suspect,” Gundlach said during a conference call on Tuesday. “The odds are … 50/50.”
The fixed income specialist threw out several cautionary views — on a shift in both volatility and the “steady grind” of higher equities and yields, though he described the 10-year Treasury yield as poised to top 2.6% by year-end but not to hit 3%.
The lengthy low-risk, low-volatility U.S. financial environment should not be viewed as a "new paradigm," Gundlach said on a webcast on Tuesday.
"We're on increasing watch for volatility," he said. He also noted the “massive amount of money” that has made a short bet on the VIX volatility index.
"It's a trade that's made a lot of money, and it's very very crowded, which suggests to me the days of low volatility are numbered," he said.
More specifically, the portfolio manager reviewed his thinking of where it’s best to be positioned with bumps in the markets expected to appear as early as this summer.
"If you're a trader or a speculator, I think you should be raising cash today, literally today. If you're an investor you can easily sit through a seasonally weak period," Gundlach said.
A positive step at stock diversification, he adds, is to move into European equities.
"I strongly urge investors to peel a portion of their S&P holdings and move into Europe," Gundlach said.
He also expressed a fairly bearish view on the reform pace of President Donald Trump given the present political environment.
Establishment actors in Washington are trying to “wait Trump out,” meaning stall on his proposals.
Gundlach, recalling a strategy of fighter Muhammad Ali, said, “It’s clear to me that this is ‘rope-a-dope.’ They are letting [Trump] … wear himself out. It’s about obstructing the agenda, and [for some] even impeachment — that I doubt will happen.”
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