DoubleLine CEO Jeffrey Gundlach says there’s some potential for gold and good support for a strong U.S. dollar. He shared these views and much more, of course, during his “Penny for Your Thoughts” webinar late Tuesday, in which he also clarified his controversial view on the housing sector.
“Calls for much higher Treasuries yields are premature once again,” he remarked.
The trading range is likely to stay between 2.2% and 2.8%, the fixed income expert says. “We are now at the midpoint of the range, so it’s not a bad time to think about bonds.”
In the first half of 2014, U.S. Treasuries made it to 2.44% and then moved up to 2.64%.
“Pension plans are taking advantage of big equity gains to move from stocks to bonds,” Gundlach explained. “And that cyclical movement is having an impact.”
The bond-shop CEO believes interest rates of 4% are not expected until 2020. “That’s what the market is saying,” he explained on the call.
Why are rates so low? “There’s a big short position in Treasuries” held by speculators, Gundlach said.
Of the $16.8 trillion of Treasuries, the Federal Reserve holds about $2.1 trillion, while the Social Security system has $2.6 trillion. The Chinese own $1.3 trillion of Treasuries, but other countries have double that amount.
As for the U.S. housing industry, “I am negative on homebuilders,” he said. “And I do get hate mail about this.
“I am not negative on housing — though I don’t see prices doing much. I do not see a crisis. The idea is limited to the theme that new home-buying will be much less than previously thought. It’s not so much of an economic story, but new home sales will be less of a support for the economy than some believe.”
Rules have tightened up the home-buying process, Gundlach points out: “Housing finance has changed markedly.“
“New home sales of the past 10 years are nowhere near those of the bubble, and they are now at the level of ’09,” he explained. “There’s been no uptick recently.”
He sees this as a generational shift.
“I do not see millennials buying homes like the previous generation did … Young adults today are scarred, and I do not think they see housing as security. I think they see it as risk.”
With interest rates going lower in Europe and better economic fundamentals on this side of the Atlantic, “The U.S. dollar is incredibly stable and doesn’t want to move,” Gundlach said. “We think it should see some upside.”
Politicians in Europe want to keep the euro low vs. the dollar, he notes, “and don’t want it to move.”
Still, he said earlier in his presentation, U.S. dollar debasement — as measured by purchasing power parity – has been substantial in the long term. “The dollar has lost 96% of its value since 1913,” Gundlach said.