Gundlach Says ‘Look Out’ for Exploding U.S. Deficits

  • ‘We’re in the eye of a hurricane,’ he tells Schwab conference
  • DoubleLine manager sees 3% inflation in Trump 2017 White House

Bad times lie ahead for bondholders as rising inflation and resurging deficits conspire to drive up interest rates, according to Jeffrey Gundlach.

QuickTake U.S. Budget Deficit

“We’re in the eye of a hurricane for the next three to four years,” Gundlach, chief executive officer of DoubleLine Capital, said Tuesday at the Impact 2016 conference hosted by Charles Schwab Corp. in San Diego. “Come 2018, 2019 and 2020, look out!”

Gundlach, 56, has recommended that investors stay on the defensive by reducing exposure to longer-duration securities. The manager, whose firm is based in Los Angeles, has favored emerging-market debt over high-yield bonds amid concern that oil prices will plateau and threaten energy companies’ ability to repay debt. He’s also warned that stocks have more downside than upside.

Gundlach’s $61.8 billion DoubleLine Total Return Bond Fund is up 3.9 percent this year, beating 73 percent of its Bloomberg peers. Unlike many active fund managers, he has continued to attract money, reporting $11.8 billion in inflows this year through September to DoubleLine’s open-end mutual funds.

TIPS ‘winners’

Citing data from the Economic Cycle Research Institute, Gundlach said the inflation rate could exceed 3 percent within six months.

Gundlach, who in late 2014 said “TIPS are for losers,” said rising inflation makes Treasury inflation protected securities a good investment. “I like TIPS,” he said Tuesday. “TIPS are for winners.”

Bond yields bottomed and prices peaked in July, Gundlach said. Federal Reserve Chair Janet Yellen wants a “high pressure economy” with inflation above 2 percent and the unemployment rate below 5 percent, he said.

He still believes Donald Trump, whose chances of being elected president are 14 percent according to betting odds from RealClearPolitics.com, will win the race for the White House. “Trump would -- and will when he wins -- ramp up the deficit,” Gundlach said.

(Corrects description of flows to open-end funds in fourth paragraph.)
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