Jeffrey Gundlach: A Recession Will Come, So Investors Should Start Playing Defense Right Now
- Posted on December 06, 2019
- Stock Market
- By admin admin
American bond
investor and businessman, Jeffrey Gundlach who had a chat with Yahoo Finance
correspondent, Julia La Roche believes that even though recession risks have
fallen, now is the time for investors to be "playing defense."
The U.S. economy
has weathered the uncertainty of a full-fledged trade war between the world’s
two largest economies far better than most economists expected. Yet even with a
proactive Federal Reserve and a strong labor market, the CEO of $150 billion
DoubleLine Capital believes a downturn is more a question of “when” than “if.”
The U.S. is
“battling tooth and nail the next recession," Gundlach told Yahoo Finance
in an exclusive wide-ranging sit-down. "The Fed has done, and the central
banks, everything they can to avert the next recession. But a recession will
come."
After Gundlach
successfully played defense in 2007 and 2008, he went on offense in 2009 and
put capital to work in the beaten-down mortgage bond sector and reaped the
benefits.
"When the
opportunity comes, you'll want dry powder to pounce on it,” he said. Gundlach
emphasized investors need to be playing defense now, just like investors should
have done so in 2006.
"I think
playing defense is early. You probably should've started playing defense in
2018. And the fact that 2019 has been really good is just a better reason to
play defense."
You never have
the same crisis twice," he said.
Gundlach pointed
out that the corporate bond market is "probably significantly overrated,
which sounds a lot like subprime in 2006." He added the leverage ratios
suggest that one-third of corporate bonds should be rated junk right now, but
they've received a pass to address this excessive debt.
In fact, on
Wednesday S&P Global Ratings released new data showing the number of
“weakest links” or issuers with relatively weak credit ratings and/or negative
outlooks rose to 266 in October, up from 263 in September.
When the next
downturn hits, Gundlach warned that “there won't be any idea of addressing
these leverage ratios. They're just going to get a lot worse when the recession
comes. And you're going to see en masse downgrading of the investment-grade
corporate bond market.”
He predicted those
strains will pressure bond prices and “lead to very significant divestment of a
lot of the naive money that's gone into the corporate bond market. Because it's
been a pretty smooth ride for the last 10 years. And it's been pretty rewarding
this year as well."
He added that a
lot of investors don't understand the risk that exists in corporate bonds,
particularly when the next downturn hits.
For that reason,
Gundlach recommended that “corporate bond exposure should be at absolute
minimum levels right now. And I also think that non-U.S. exposure should be
ramped up to maximum levels. For people that allocate globally, I think they
should be moving towards the minimum of their range, whatever that number
is."
Source:
Yahoo
Finance
Be the first to comment!
You must login to comment