Gundlach Says Market Hasn’t Seen Full Impact of Fed Moves

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DoubleLine Founder Jeffrey Gundlach
Jeffrey Gundlach, Founder and Chief Executive Officer of DoubleLine Capital LP, said in an investor webcast on Tuesday that the firm is largely avoiding the debt and instead likes municipal bonds because of their high yields relative to other parts of the fixed-income market. Photographer: Scott Eells/Bloomberg

DoubleLine Capital’s Jeffrey Gundlach, the bond manager who has beaten 99 percent of his peers over the past five years, said the full impact of the Federal Reserve’s “extreme policies” have yet to be felt in the market.

The Fed has been “very well-intentioned,” Gundlach said, speaking in an interview on Sunday on Wall Street Week. “The ultimate consequences of all these extreme policies have yet to be felt and will be felt.”

The central bank has kept rates in the U.S. near zero and embarked on unprecedented monetary stimulus since the 2008 financial crisis. Known for his contrarian views and top returns, Gundlach said rating the Fed very highly at this point is “sort of like a man who jumps out of a 20-story building, and after falling 18 stories, says, ‘So far, so good.’”

Gundlach, who manages the $46.2 billion DoubleLine Total Return Bond Fund, has beaten 99 percent of peers over the past five years, according to data compiled by Bloomberg. He said last month that if the Fed increases interest rates by mid-year, they would have to reverse course. On Sunday, he said that the probability of a rate increase by the Fed in June is very low, because the economic data doesn’t support such a move.

“I think the Fed would like the data to corroborate their ability to raise interest rates but it isn’t there yet,” he said.

Gundlach reiterated caution on high-yield bonds, saying that default rates could go higher. He also cautioned investors that some mall real estate investment trusts are in a “death spiral.”

Gundlach started Los Angeles-based DoubleLine in 2009 after he was ousted as chief investment officer of TCW Group amid a dispute that led to a legal battle.