Gundlach: Bonds are Much Cheaper than Stocks

The bond market is much cheaper than the stock market, according to Jeffrey Gundlach. Investors should abandon the traditional 60/40 stock/bond allocation in favor of a 40/60 split.

“Bond allocations will prove to be much more rewarding this year than last,” he said. Gundlach can justifiably be cited for “talking his book,” since he oversees one of the world’s largest pools of actively managed bond funds. But, as I will discuss, a year ago he (correctly) made the opposite call, favoring stocks over bonds.

One year ago, bonds were above par, he said, which is not a good starting point. Now bonds that were priced at $102 are going for $60 to $75. They can easily appreciate back to par, even if they are losses due to defaults.

“Bonds are not rich to stocks,” he said, and have less downside risk. They can act as a diversifier to equity allocations, especially if there is a recession.

Gundlach is the founder and chief investment officer of Los Angeles-based DoubleLine Capital, a leading provider of fixed-income mutual funds and ETFs. He spoke to investors via a conference call on January 10. Slides from that presentation are available here. This webinar was his annual forecast for the global markets and economies for 2022, and its title was, “What’s Going On?”

The title was from a song Marvin Gaye recorded in 1970, after witnessing police brutality in Berkeley, CA. It was the first single that used his three distinct vocal styles. Gaye was tragically shot and killed by his father in 1984, at the age of 44.