Gundlach Says Yellen’s Legacy at the Fed Is Looking ‘Pretty Good’

  • Manager sees no evidence of recession on horizon in next year
  • Powell may find attaining consesnsus ‘is not going to be easy’

Giving Janet Yellen Credit for the Market Rally

Billionaire bond manager Jeffrey Gundlach says Janet Yellen’s legacy as Federal Reserve chair looks strong because she started raising interest rates and reducing the Fed balance sheet.

“It looks like Janet Yellen is going to end up with a pretty good legacy,” Gundlach, chief investment officer of DoubleLine Capital, said during a webcast Tuesday for his Total Return Bond Fund. “So far nothing has blown up. So far so good.”

U.S. and global growth, stock markets and other economic indicators are chugging along with no signs of recession in the next six to 12 months, Gundlach said.

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Yellen’s designated successor, Jerome Powell, may face a challenge getting members of the Fed to agree on a path for the future rate hike outlook, according to Gundlach.

“I think Mr. Powell is going to find that attaining consensus among the Ph.D. economists is not going to be easy,” Gundlach said.

Gundlach’s $54 billion DoubleLine Total Return Bond Fund, which mostly invests in mortgages, returned 3.6 percent this year through Dec. 4, outperforming 81 percent of its Bloomberg peers. It’s averaged 3 percent returns over the past five years, better than 90 percent of competitors.

On other topics, Gundlach said:

  • Commodity prices appear to have bottomed and could be a good investment because they typically climb in advance of a recession.
  • The gap bears watching between central bank rates in the U.S. and Europe, where quantitative easing policies continue. “Either it’s going to be a substantially better performance in Europe than in the United States or it’s going to be that economic theory is worth exactly zero,” he said.
  • The Republican corporate tax cuts are arriving in a “strange environment,” because the economy is already strong.
  • Municipal bonds, which have returned almost 5 percent percent this year, have probably been driven up by high-income earners from states like California and New York who face tax increases under the tax overhaul bills in Congress that eliminate many state and local deductions. “It’s not really a tax cut at all relative to the buyers of the muni market,” he said. “For them, it’s really a tax increase.”
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