Jeffrey Gundlach (DoubleLine Capital)

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Notes from the DoubleLine Lunch with Jeffrey Gundlach bt Joshua M Brown

For the uninitiated, Jeffrey opened his own asset management shop, DoubleLine, in Los Angeles two years ago. Since then, he's raised about $16 billion starting from zero.

This is an astounding feat and no one has ever seen anything like it in Wall Street history. On top of that, he's managed to absolutely crush his peers in the bond market year-to-date with an elegant risk-offsetting pairs trade that's meant bigger yields than most of his competitors without compromising on liquidity, credit quality or duration.

http://www.thereformedbroker.com/2011/0 ... -gundlach/

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On Asset Allocation for the Ultra High Net Worth:

Jeffrey says his own assets are now 2/3rd's outside of the "financial system" other than his ownership stake in DoubleLine.

This means fine art, gold, gemstones, rental property etc. He says the ultra wealthy should have 50% of their assets outside of the financial system.

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On Bull Markets and Bear Markets:

If you study history, you'll see that "bull markets are about cooperation, bear markets are about divisiveness."

Jeffrey says the Euro common currency came about in 1999 at the very peak of global cooperation, the fact that asset prices peaked around then too is not a coincidence.

Right now divisiveness is everywhere and a global bear market is underway.

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On the Euro Crisis:

"I don't know what's going to happen in Europe but there is one thing I am certain about - eventually, someone is going to take a big loss.

As investors, the most important thing we can do is to make sure that we aren't the parties taking that loss."

He says DoubleLine's portfolios have zero European stocks, zero European bonds, zero european currencies, zero assets denominated in euro currencies - also, zero exposure to US bank stocks.

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On Volatility:

There is nothing magical about the 40 level for the VIX, and whether we are trading above it or below it doesn't necessarily signify anything important for stocks.

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On Stock Indicators:

"The single most important stock market in the world right now is the Shanghai Composite".

It is an "excellent leading indicator for the S&P 500.

Shanghai needs to improve before we can be bullish on US stocks."

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On the US Dollar:

While everyone is whining and crying about the falling dollar, the simple fact is that the dollar actually bottomed three years ago and is now strengthening.

"The problems in Europe are wildly bullish for the dollar".

"All of our assets are dollar denominated."

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On Gold:

"I understand the allure of gold but in a deflationary environment or a true liquidity crisis, there is serious risk to gold prices up here." he says around 1500 gold gets interesting again.

Jeffrey showed us the pronounced daily volatility in gold prices (hi-lo chart) since the Debt Ceiling debate - he notes that "Increases in volatility almost always precedes a reversal in trend."

Jeffrey bought gold personally in 1997 because he thought it looked cheap -

"For five years it did nothing, I actually lost money, then I made five-fold on my investment."

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On Copper and Commodities:

Copper is still trading at 40% above the marginal cost of production so there is still risk to these prices.

Commodities (other than gold) have been terrible over the last three years.

Since September 19th 2008 through this week, the DJ UBS Excess Return Commodity Index is down 18.4%, it was up 12.72% during QE1 and 6.73% during QE2.

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On Housing:

Way too high ownership level still - "Home ownership rate at 70% is still absurdly high".

More foreclosures - five years worth - unavoidable and politically speaking no one is going to be bold before the election with any kind of sweeping forgivable or modification plan.

The existing programs are all one-by-one which is why they are not helping at all.

Expect more malaise in housing. He is very bullish on rental property for the foreseeable future.