Jeffrey Gundlach

Don’t expect the low volatility that characterized the capital markets in 2012 to continue. Global economic uncertainty remains, and markets are poised like a “coiled snake” to reward or penalize investors in certain asset classes, according to Jeffrey Gundlach.

Gundlach, the founder and chief investment officer of Los Angeles-based Doubleline Capital, delivered his 2013 forecast to investors in a conference call on January 8. His talk was titled “The Year of the Snake,” and the slides from his presentation are available here.

“Returns in 2012 were really better than they deserved to be,” Gundlach said. “Just about every equity and fixed-income asset class had positive returns.”

Risk-taking investors did well last year, he said, as sectors such as convertible, high-yield and emerging-market bonds performed very well – much better than they did in 2011. Those investors were aided by Federal Reserve and central bank policies that dampened volatility, according to Gundlach.

But Gundlach warned investors to be wary of volatility in 2013. Markets this year are more likely to resemble those in 2011, according to Gundlach, when safe investments – like government bonds – were among the strongest performers.

“I am not sure I would advise taking a lot of risk right now,” he said.

Let’s look at Gundlach’s forecasts for stocks, bonds, gold and the dollar.

US equities and the economy

Gundlach’s outlook on the US economy was downbeat.

He cited estimates from Goldman Sachs that spending cuts – at the federal, state and local levels – and tax increases would decrease economic growth by 1.75%. The next debt-ceiling debate will be “uglier” than the recent fiscal-cliff rancor, he said.

Indeed, GDP estimates have been decreasing. Bloomberg’s forecasts for the first quarter 2013 GDP have been steadily declining over the last two years, according to Gundlach, and those reductions have been even more pronounced for the second-quarter GDP estimates. “Economic growth keeps being over-predicted for forecasting purposes, and I think that is still the case,” he said.