American bond investor Jeffrey Gundlach has lost faith in US Treasuries. That's significant, because Gundlach, one of America's best-performing bond managers, shot to fame last year by investing heavily in T-Bills when other gurus made high profile calls to sell.
In an interview with CNBC last month, Gundlach was bullish on equities pretty notable given that he's a bond manager and most managers like to talk up their own asset class. In particular, helikes China's stock market.
However, he remains bearish on Apple. He first talked about shorting the stock in May. Since then it has risen to record highs, but Gundlach is sticking to his guns.
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"The obsession with Apple is a totally remarkable phenomena. You look at CNBC and everybody is talking about it. That fixation says to me that the stock is over believed and overbought."
Apple's price rise isn't the only travail Gundlach had in September. Burglars also broke into his house and stole his Porsche and $10m worth of art. But given that he owns one of America's most successful bond management firms, it's a fair bet that he can cover the costs.
The former 80s rocker rose to prominence as one of the most eccentric, and best-performing, bond fund managers in the business when he worked at TCW Group, a giant US investment fund. His star rose further in 2009 when, after being thrown out of TWC for alleged drug and pornography offences, he set up his own management firm, DoubleLine Capital.
He was joined by a lot of TWC's former staff and, more importantly, its clients. From a standing start, DoubleLine Capital now manages $45bn of client money and its funds have outperformed the markets.
Gundlach now says he doesn't see "the big deal" about T-Bills. "Yields are so low now, I don't know what investors are hoping for. Yields [which move inversely to price] don't have much more room to fall." He also says it's "striking" that "in the '80s, Treasuries offered real returns of 10% and no-one wanted them. Now they offer 1.8% and people are interested."
The California-based investor also criticised the Fed's latest bout of quantitative easing. "I am a smaller governments, smaller intervention person. I don't like to see the markets grossly manipulated we are living in a hall of mirrors where we don't know what investors think because price discovery is being distorted by government intervention."
But like it or not, Gundlach accepts that the situation will continue. "The Fed is more likely to own every Treasury in existence than start selling them." As a result, he thinks that in the long term, investors need to invest in equities. "I don't like stocks at the price levels they're at today but in the longer term, Fed policy means you want to be involved in real assets and businesses that have the ability to preserve purchasing power."
For Gundlach the key is finding cheap stocks. He tipped the Spanish stock market a few months back and it's up 40% since then. But now, he says, it's harder to spot cheap markets. "The US, Europe, these markets are near pre-crisis highs. The one market that does look bombed out, almost dangerously so, is the Shanghai composite."
He also had words of advice for retirees struggling to find income when bond yields are so low. He told them to invest in secure dividend-paying stocks. But to steer clear of technology firms or banks because they are too risky. "Go for something like Campbell Soup or Kraft Foods instead. They are real defensive stocks because people will buy their products no matter what."
James graduated from Keele University with a BA (Hons) in English literature and history, and has a NCTJ certificate in journalism.
After working as a freelance journalist in various Latin American countries, and a spell at ITV, James wrote for Television Business International and covered the European equity markets for the Forbes.com London bureau.
James has travelled extensively in emerging markets, reporting for international energy magazines such as Oil and Gas Investor, and institutional publications such as the Commonwealth Business Environment Report.
He is currently the managing editor of LatAm INVESTOR, the UK's only Latin American finance magazine.
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