When it comes to quantitative easing (QE) by central banks, investors need to worry about what's happening, not what they believe should be happening.
That's the blunt message from DoubleLine's Jeffrey Gundlach, one of America's most successful, and controversial, money managers.
It's not that Gundlach is a fan of money printing' far from it. He believes it is a "policy that's very short-sighted and will have immense long-term consequences". Indeed, eventually he expects "it will spiral out of control".
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But, while QE is in full effect, investors have to take advantage.
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So what is the best way? According to Gundlach, US Treasuries (government bonds) are "the safest market there is". That might seem odd given that most pundits reckon the current record low yields (remember yields and price move in opposite directions) are unsustainable.
But the way Gundlach sees it, the Fed is committed to using QE to buy Treasuries, because the alternative would just be too difficult for the policymakers to take. "If interest rates are going to rise, it means quantitative easing was a total failure. It means the budget deficit of the United States is going to explode into a massive crisis. It means housing is going to crash, because it's interest-rate based. MLPs are going to crash because they're highly-leveraged, REITs are going to crash because they're highly-leveraged, and stocks are going to crash."
Away from the bond market, Gundlach sees opportunities in natural gas and Apple. Last year Gundlach controversially (but correctly) declared that Apple was "overbought". Not everyone agreed with him at the time, but in the last eight months Apple's share price has slid from $700 to $450.
Gundlach now feels the stock is cheap enough to buy back in. "I think Apple is an interesting play. I think Apple is detached from the stock market for sure. The market went up a lot and Apple went down a lot. It's building a base. It's sorta cheap. If you strip out the cash, you've got a 7 P/E [price/earnings ratio] or lower on the business, it's a cash machine. I sorta like Apple. So, we own a little bit of Apple in our equity strategy."
Gundlach doesn't think much of the firm's new management and isn't convinced that they'll bring a new, truly innovative product to the market. But the way he sees it, with the price at these levels, "it doesn't need a new product. All it has to do is keep selling a whole bunch of expensive phones and iPads, and they'll be a cash cow."
Another of Gundlach's long-term calls is natural gas, and he is still positive, calling it "a generational long". What he means by that is not that it's the best long stock tip of a generation, rather that over the course of a generation, the price of natural gas is going up.
"It doubled from when I bought it, but it's been volatile", says Gundlach. However, for long-term trends like this, he warns investors not to try to be too clever and time the market. "If you believe in something as a long-term play, the problem that you have is when you get out of it, what do you do next? If you sell natural gas at $4 (per BTU), what are you hoping for? It goes to $3.75? Are you going to buy it then? What if it goes to $4.50? Are you going to buy it then? I think it's going to double again. It doubled once, it's going to double again. It might take five years, it might take ten years, but you can't get too cute."
Like MoneyWeek, Gundlach has long been bullish on Japanese stocks and, despite recent drops, he still thinks they're a good buy. "If you're going to own any stock market, it's Japan. If the reason to own stocks is quantitative easing, you want to own the ones that have the biggest support, which has been Japan."
And finally Gundlach has a word for gold bugs buy silver instead. The whole point of owning gold, says Gundlach, is as a hedge against inflation. But the trouble with inflation hedges is that they are "dead money" ie unless there is inflation they aren't doing anything for your portfolio. "I believe if gold doubles, silver goes up four times. You have twice as much dead money if you use gold instead of silver, so silver is a more efficient way to do it."
