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Gundlach Outlines Market, Other Trends

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DoubleLine CEO Jeffrey Gundlach says there’s some upside potential for gold and good support for a strong U.S. dollar. He shared these views during his “Penny for Your Thoughts” webinar in mid-June.

“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, new home-buying will likely “be much less than previously thought,” said Gundlach.

“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.”

The fixed-income expert sees this as a generational shift, as millennials have come to see housing not as a form of security but as a risk.

On the currency front: “The U.S. dollar is incredibly stable and doesn’t want to move,” Gundlach said. “We think it should see some upside.”

As for U.S. GDP growth, he says the second-quarter forecast of 3.5% may be a bit high. “I think it should be about 3% and thus about 1% on average for the first half of 2014.” Gundlach saw worrisome prospects for deflation in Europe and lower growth in China.

“When it comes to gold, we are at a decision point in the market,” he said. “I think in the second half of 2014, we should see higher highs … and thus go over $1,400 an ounce,” Gundlach said. —James J. Green contributed to this report.