Oxstones Investment Club™By Sam Ro, Business Insider,
Jeff Gundlach of DoubleLine Funds just wrapped up his latest public webcast.
He reiterated his calls for interest rates and inflation to remain low. He also reiterated his worry about the longer risks of high Federal debts and deficits.
Gundlach spent quite a bit of time on the turmoil in the emerging markets, particularly India.
“I would not own the Indian stock market,” he said. “It looks very scary.”
Gundlach attributed India’s woes to its collapsing foreign currency reserves and it’s heavy reliance on external financing.
He pointed to the tight inverse correlation between the rupee and U.S. interest rates as evidence of this.
But he doesn’t hate all of the emerging markets. Despite their local problems, both China and Russia are insulated thanks to low reliance on foreign capital.
“I think Russia and China are interesting to own,” he said.
How would he trade this?
“Long China, short India. Long Russia, short India.”
3:17 PM The call begins at 4:15 p.m. ET
4:20 PM Jeff Gundlach is speaking…
4:22 PM Cover slide
4:24 PM On bond sector returns…
International-developed market bond indicies are getting hit by the depreciating yen.
4:25 PM What changed everything in the market?
The prospect of the end of QE.
“The Federal Reserve, I think is making a big mistake.”
Fed governors have been eerily quiet; we haven’t heard from a pure governor since July.
An emerging market crisis is a candidate for something that could cause rates to fall.
4:35 PM On Fed policy…
According to the San Francisco Fed, dropping the Fed funds rate has an immediate impact on GDP, but benefit diminishes.
Risk of inflation diminshes as well.
4:46 PM On Emerging Markets…
QE also came with a huge surge in EM shares outstanding. That’s been reversing.
There’s a very tight correlation between U.S. interest rates and the Indian rupee. Foreign currency reserves have collapsed.
“I would not own the Indian stock market. It looks very scary.”
He doesn’t hate all EMs. Just doesn’t like India.
China doesn’t need foreign capital. They have internal financing. Insulated.
“Long China short other emerging markets is a winning trade.”
Russia is also insulated because it doesn’t need foreign capital.
“I think Russia and China are interesting to own.”
4:57 PM On commodities…
The CRB, which had been notoriously volatile, has been notoriously non-volatile in recent periods. It’s broadly going sideways.
Watch out for this one. Not a very strong sign for inflation.
5:02 PM An interesting chart
“When home prices were falling, that’s exactly went gold went on it’s monster rally higher.” People who couldn’t go to real estate went to gold. Now real estate is a viable competitor to gold.
5:03 PM Another interesting chart
Gold is down in dollars, record high in rupee terms.
5:04 PM Big problem in India
The price of crude oil is surging in India.
The best candidate for a problem in the emerging markets.
5:07 PM On debt…
Personal consumption expenditures fueled by government debt (entitlements).
Net interest on debt will become a problem. This is why the Fed needs to keep rates so low.
Social Security deficit is tame now, but explodes in just a few years.
5:11 PM On the budget…
One way to balance the budget would be to raise the marginal income tax rate.
5:12 PM On Europe…
PMIs, GDP moving up, but the drop is extraordinary.
Spanish home prices still down significantly.
Spanish debt delinquencies extremely high.
5:14 PM On US housing…
Mortgage rate are rising, but the upward momentum is slower.
S&P Homebuildiners ETF is still very high, back to 2007 levels. Thought that was a bubble.
Mortgage applications index 1) is falling and 2) never really rebounded.
“Housing is not the economic tailwind it used to be.”
5:24 PM Q&A beginning…
5:26 PM Stagflation?
I need commodity prices break out first.
5:29 PM Impact of German elections?
“Zero.”
There won’t be a regime change. Odds are better Anthony Weiner wins primary.
5:31 PM Will you short India equity?
Not now because it is rebounding sharply. Having a nice relief rally.
5:32 PM Where is the safe haven?
Gold at $1,350 or so represent something of a safe haven.
“I kind of like gold.”
Likes pair trades.
5:35 PM Why are rising rates not effecting the economy more?
It IS affecting housing. Jobs also decelerating.
Affecting emerging markets.
5:37 PM The webcast ends.
Read more: http://www.businessinsider.com/jeff-gundlachs-sept-10-presentation-2013-9#ixzz2ebepaVOv
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