America’s debt burden and interest expense have become “untenable,” a situation that may lead investors to move out of dollar-based assets, according to DoubleLine Capital’s Jeffrey Gundlach.
“There’s an awareness now that the long-term Treasury bond is not a legitimate flight-to-quality asset,” the veteran bond manager said Wednesday in an interview at the Bloomberg Global Credit Forum in Los Angeles. A “reckoning is coming.”
In a wide-ranging discussion that also touched on gold’s attractiveness, stretched market valuations, the state of private credit, artificial intelligence and long-term investment opportunities in India, Gundlach said investors should be considering non-dollar-based holdings, adding that his firm was starting to introduce foreign currencies into its funds.
Gundlach, 65, likened today’s market to the environment in 1999, just before the dot-com bust, as well as 2006 and 2007 before the global financial crisis. Going further, he said the booming private credit sector is analogous to the market for collateralized debt obligations,or CDOs, in the mid-2000s, “where there’s just tremendous issuance, there’s tremendous acceptance.”
The investor noted that public credit markets have outperformed their private counterparts in recent months, and sees “overinvestment” — and a risk of forced selling — in the latter.
“I just don’t think the excess reward is anything close to what it used to be,” Gundlach said. He cited possible selling of private assets by US institutions such as Harvard University, which has explored offloading part of its endowment’s private equity holdings as the Trump administration cuts off grants and funding.
Gundlach founded DoubleLine in 2009 after a contentious exit from TCW, where he’d become a star bond manager. DoubleLine managed $93 billion in assets and had more than 250 employees as of March.
The firm and its founder haven’t shied away from bold takes. Gundlach, who called Donald Trump’s first presidential win in 2016, gave the Federal Reserve an F grade in September for its response to the economy as he correctly predicted a half-point rate cut, and earlier this year the firm posed an open question of whether Microsoft Corp. debt was safer than Treasuries.
As for Treasury debt, Gundlach said yields on long-term bonds could continue to rise as the economy starts to weaken. If yields reached 6%, that could prompt the Federal Reserve to step in and start quantitative easing, buying long-term Treasuries to rein in borrowing costs.
DoubleLine and peers including Pacific Investment Management Co. and TCW Group Inc. have been avoiding the longest-dated US government bonds in favor of shorter maturities that carry less interest-rate risk in the face of spiraling federal debt and deficits.
US 30-year yields touched a near two-decade high of 5.15% last month, and traded at 4.91% as of Wednesday. In a telling sign, yields on the long-term benchmark are higher year to date, even as rates on shorter-term Treasuries have fallen.
While known for his fixed-income calls, Gundlach has grown more bullish on gold, doubling down on its status as a “real asset class” and one that is “no longer for lunatic survivalists” and speculators.
“We have a tremendous paradigm shift where money is not coming into the United States, and gold is suddenly the flight to quality asset,” he said.
Gundlach previously predicted that the price of gold would shatter records, as happened this year, and in May, he told CNBC that the precious metal could swell to $4,000 per ounce, up from about $3,350 now.
He also pointed to India as one of the “most bankable” long-term investment opportunities.
“The way to invest in periods like this is to go with long-term themes,” Gundlach said. “It might take 30 years, but you should invest in India because it has a similar profile today that China had 35 years ago.”
With assistance from Elizabeth Campbell, Loukia Gyftopoulou and Michael Mackenzie.
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