Gundlach: Buy Bonds, Not Stocks

There is plenty of opportunity in the bond market, particularly in low-risk Treasury bonds and in the mortgage markets, according to Jeffrey Gundlach. A year ago, stocks were cheap; now, he said, “Bonds are absolutely cheap relative to stocks.”

“Owning bonds is better than white-knuckling it in stocks in an economy that is going into a recession,” Gundlach said.

Gundlach spoke to investors via a webcast, which he titled “Dust in the Crevices,” and the focus was on his flagship total-return fund (DBLTX). Slides from that webcast are available here. Gundlach is the founder and chairman of Los Angeles-based DoubleLine Capital.

The title was from Gundlach’s hobby as an art collector. He said he was inquiring about a 110-year-old sculpture and was told it had “dust in the crevices,” which is normal for a piece of art that old. But he realized the same is true of our financial system in the context of the debt-ceiling debate. The debt ceiling has been raised 99 times since 1913. “This debt-ceiling thing is pretty dusty,” he said, “as is our method of getting past it.”

Gundlach said inflation is “in retreat,” and that removes the biggest obstacle to lower yields.

“This why bond yields have stopped going up,” he said. The 10-year Treasury cannot get to 4% and stay there.

He has recommended long-duration bonds since last October. It is safe to own longer term bonds, Gundlach said. There will be a rally, at least initially, in longer term bonds if there is a recession.

Gundlach has increased the duration on DBLTX to its highest level ever.

“We have seen the peak in interest rates in this cycle,” he said.