DoubleLine’s Jeffrey Gundlach warns of another round of market shakedown

Opalesque
October 5, 2015

DoubleLine Capital co-founder Jeffrey Gundlach is painting a bleak future as he warned that the U.S. equity market and other risk markets, such as high-yield "junk" bonds, are facing another round of selling pressure.

Gundlach said in an interview with Reuters, "The reason the markets aren't going lower is people are holding and hoping. The market bottoms out when people are selling and sold out – not when they are holding and hoping. I don't think you've seen real selling in risk assets broadly. Markets need buying to go up and they need volume to go up. They can fall just on gravity."

On Friday, investors piled into government bonds that sent the 10-year Treasury yield below 2% following the announcement by the Labor Department that 142,000 new jobs had been filled in September, way below the forecasted 203,000.

Gundlach said that under the scenario, junk bonds are facing the most vulnerability, "I'll think about buying when it stops going down every single day. People are acting like everything is great. Junk bonds are at a four-year low. Emerging markets are at a six-year low and commodities are at a multi-year low - same level as in 1995 ... GDP is not growing at a nominal basis."

Gundlach further stated, "Clearly what's happening is people are waking up to the idea that global growth is not what they thought it was. There's going to be another wave down in risk assets and it's happening globally."

A Separately, a Bank of America Merrill Lynch survey of fund managers last month found they are bracing for a global recession by selling stocks and commodities. The latest sign of concern for the economic outlook comes as investors balance the effect of recovery in the U.S. against a slowdown for China and countries that supply it with raw materials.