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Gundlach: Less Than 25% Chance of Fed Rate Hike in September

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DoubleLine Capital Chief Executive Jeffrey Gundlach says the chance the U.S. Federal Reserve will raise interest rates in September is now less than 25% given the crises in Greece and Puerto Rico, as well as low commodity prices and China’s market weakness.

“I don’t see the Fed raising rates in September,” said Gundlach, in a conference call with investors on Tuesday, pointing to a recent drop in oil to $50 per barrel and a plummet in copper. (In June, he said the chance of a September rate hike was under 30%.)

The fixed-income expert says Greece is likely to leave the euro currency group. “When? I don’t know … but I’ve been saying so since 1999,” he said.

That move could strengthen the euro, at least in the short run. But it also carries with it the possibility that other bloc members could head for the door. “It opens a Pandora’s box,” he said.

Gundlach says he remains bullish on gold, but appears bearish on China, given the market’s 30% plunge of the past month. “The Shanghai Composite index is looking like Nasdaq in the fourth quarter of 1999 and is unlikely to resume a vertical rise,” he explained.

(On Thursday, a day after a state-ordered trading halt left 43% of the market frozen, the benchmark Shanghai index rose 5.79%, its biggest single-day rise since March 2009.)

As for the U.S. dollar, Gundlach described it as being “in a consolidation phase,” noting that it’s “safer to be in the dollar” than in other currencies right now.

Fixed-Income Returns

During the webinar, the Doubleline chief reviewed result in the fixed-income sector through early July, based on Bank of America data. Convertible bonds – which Gundlach doesn’t buy – are leading the pack with a 4.7% increase, followed by high-yield bonds at 2.8%.

International emerging-market debt is up 1.6%, while corporate debt is down 0.7%. International developed-market debt has weakened by 1%, as government issues have fallen nearly 0.4%.

The CCC-rated high-yield index tracked by BofA has improved 1.6% so far this year, with the BB-rated high-yield credit market is up 2.5%. The B-rated high yield index has jumped 3.%, but A-rated credit is down 0.7%.

— Check out What Do Gundlach and Goldman Really Think of Advisors? on ThinkAdvisor.