Jeffrey Gundlach says bonds are ‘wickedly’ cheap compared to stocks – and offers one way to get a 9% return with little risk

Jeffrey Gundlach says bonds are ‘wickedly’ cheap compared to stocks – and offers one way to get a 9% return with little risk

You can forgive Jeffrey Gundlach, a long-suffering Buffalo Bills fan, if the NFL is on his mind now that the team he supports is like your favorite Super Bowl. The chief executive of DoubleLine Capital says it reminds him of an ad for Crown Royal whiskey, in which a referee asks drinkers to take a water break.

“The tagline is ‘stay in the game,'” said Gundlach, in the Spaces Twitter chat hosted by Jennifer Ablan, editor-in-chief of Pensions and Investments. “[The Fed] parties started – which is a euphemism for tightening – one shot, two shots, back-to-back three shots, and now three more … like dude, there’s water, you know? Take it easy.”

Gundlach says there is a serious risk that the Fed will get too tight, and run on the downside just as it runs on the upside, especially as it shrinks the size of its balance sheet. through quantitative easing. “Since they want to get [inflation] down 700 basis points, the overshoot could be even bigger,” he says. “Maybe it moves down to negative 4% on CPI, or negative 2%.”

He says that’s what the bond market is saying and inflation between 8% and 9%. “Why is anyone buying the 3.50%-ish 30-year Treasury TMUBMUSD30Y,
3.506%
? The only logic that squares the circle is that inflation will go to the downside.”

Gundlach says the S&P 500 SPX,
-1.71%
that it will fall as low as 3,000, and perhaps “3,400 — either way, lower than it is today.” And, perhaps unsurprisingly from the man known as the bond king, he sees plenty of opportunity in the fixed income space. “Bonds are very cheap compared to stocks,” he said. “And this is from someone who said in January, the stock markets are overvalued, but he was bail-free. No more.”

“This is a very good time to buy bonds, and one of the ways I know that, is that nobody wants to do it,” he said.

For investors with a low risk tolerance, he said a bank loan fund made sense. He said the spread to short-term interest rates was about 300 basis points. So if the Fed raises rates to 4%, the investor gets a 7% return, but can buy the bonds below 95, with a default rate of less than 1%.

“The way it goes wrong is if the Fed drops interest rates down to zero again, then you have a lower income stream, but right now, it’s a very easy way to get income,” Gundlach said. .

Hear Ray Dalio at the Best New Ideas for Money Festival on September 21st and 22nd in New York. The hedge fund pioneer has strong views on the economy’s leading edge.

The market

ES00 US stock futures,
-0.39%

NQ00,
-0.56%
higher margins before the Fed’s decision. Bonds, gold GC00,
-0.52%
and CL.1 oil,
+0.46%
caught on offer for concern about the mobilization of Russian troops. The yield on the 10-year Treasury TMUBMUSD10Y,
3.549%
slipped to 3.54%, and the dollar DXY,
+0.87%
keep marching higher.

The buzz

Russian President Vladimir Putin ordered the mobilization of some reserves, accused the West of nuclear blackmail and implicitly threatened to use nuclear weapons.

The Federal Open Market Committee’s rate decision is at 2 pm Eastern, with expectations setting a rate hike of 75 basis points. Economists at Deutsche Bank expect the dot plot, released at the same time as the FOMC statement, to show a median 2022 fed funds forecast of 4.1%, a 2023 forecast of 4.3% and a 2024 forecast of 3.9%. The press conference with Fed Chairman Jerome Powell begins at 2:30 pm

Before then, current home sales are due at 10 am Eastern.

Dr. Doom – Nouriel Roubini – says stocks could fall 40%. (subscription required)

GIS General Mills,
+5.72%
he raised his expectation after the first quarter’s fiscal results, and after the last, the builder Lennar LEN,
-1.25%
reports third quarter results.

Microchip maker Micron Technology MU,
-1.38%
downgraded to neutral by Mizuho and Stifel began to wait.

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Top tickets

Here are the most active stock market ticker symbols as of 6 am Eastern.

Ticker

Security name

TSLA,
-2.57%

Tesla

GME,
-2.47%

Game Stop

AMC,
-1.26%

AMC Entertainment

BBY,
-4.34%

Bed Bath & Beyond

AAPL,
-2.03%

Apple

NIO,
-10.34%

No

AMZN,
-2.99%

Amazon.com

NVDA,
+0.65%

Nvidia

HKD,
+0.55%

AMTD Digital

F,
-0.31%

Ford Motor Co.

Random reads

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QAnon supporters are worried about September 24th because of a flub by a German lawmaker and a Simpsons episode.

Actor Tom Hardy secretly entered, and won, a Jiu-Jitsu competition.

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