Jeff Gundlach has reason to celebrate: as of today, his DoubleLine capital, founded less than 7 years ago, now manages $100 billion in assets, a key milestone for the fund – recall that Pimco’s Total Return Fund made major headline when it sunk under $100 billion just last September. As Reuters reports, the DoubleLine open-end mutual funds collectively posted a net inflow of $1.48 billion in May, bringing the 2016 net inflow to $9.05 billion. The DoubleLine Total Return Bond Fund, the largest fund by total assets of DoubleLine, had a net inflow of about $919 million in May, for a year-to-date net inflow of $7.20 billion.
Which is perhaps surprising: unlike most other bond managers, DoubleLine has not hidden his skepticism of the market, and has not been generally unsupportive of the path central bankers have taken since the financial crisis. However, that has not prevented him from getting numerous key calls right, leading to substantial outperformance among his peer group. In fact, only recently he said the he is “sticking with my ‘2 percent upside and 20 downside’ prediction on U.S. stocks…. it’s working, I can see it going to 1,600.” He reiterated his caution in his latest interview today with Reuters when he said on Wednesday that financial markets are extremely vulnerable to a “pretty good cocktail” of three factors: The Federal Reserve raising interest rates, the labor market weakening and Republican presidential candidate Donald Trump.
“You’re going to have the Fed raising rates, the labor market is already softening and you’ll see ‘scare’ articles about Trump that read, ‘If you vote for this guy, we will go into depression’,” Gundlach said.
As for equities, Gundlach said the S&P 500 Index has been struggling to reach and stay above 2,100, mirroring the slowish growth in the United States. “It’s like people think that the Fed has this super-secret information about how strong the economy is about to become or that the economy is about to become smoking hot.” Gundlach added: “The S&P 500 has exhibited declining highs for over a year, with two big drawdowns. This is ‘dead money’ with massive anxiety.”
Gundlach may have been surprised by Yellen’s Friday speech at Harvard when the Fed chair turned decidedly hawkish, something Gundlach did not anticipate. This is what he said “Yellen is clearly less dovish than she was in March. But I watch the Fed and it is as if they have to ask the market about raising rates: ‘Please, please, Can we raise rates?’.
Which is, of course, true as the infamous BofA “Nightmarish Merry go round” demonstrated two weeks ago:
One thing Gundlach, however, was correct in his assessment that the latest move higher in stocks was a short squeeze. As the latest JPM Prime Brokerage securities lending report shows, the cumulative daily market value change of shorting and covering activities in the company’s PB portfolio across ETFs and Equities in the last week was virtually entirely due to sharp covering comparable to that seen in the March-April period.
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