DoubleLine CEO Jeffrey Gundlach has a new twist on the thinking about the supposed "Great Rotation" from bonds to stocks that market watchers have been warning about this year, and it goes something like this: Great Rotation? Don't be ridiculous—and we're not in a bond bubble, either.
"The Great Rotation is a ridiculous notion. It's utterly illogical," Gundlach (left) told a full house on Thursday at the New York Yacht Club in Midtown Manhattan. "You could also call it a Great Rotation into bonds from stocks."
In other words, Gundlach's understanding of the movement of money between the equities and bond markets incorporates a broad spectrum of diversifiers outside of traditional fixed income and domestic equities. He sees money and opportunities flowing in and out of many asset classes—which explains why he also doesn't believe in the so-called "bond bubble," either.
Of course, this is coming from a well-known bond guru who made news last month when he announced that he had bought more long-term Treasuries in the last month than he had in the last four years. Gundlach's purchase of a pile of benchmark 10-year Treasuries happened when yields rose briefly above 2% in late January and early February.
'Who Has Money in a Treasury Bond Fund?'
But he didn't advise his Yacht Club audience of investors, brokers and journalists to buy Treasuries. Gundlach asked for a show of hands in response to the question, "Who here in this room has money in a Treasury bond fund?" No one raised a hand, and Gundlach wasn't surprised, saying that the U.S. Treasury clearly doesn't want any customers outside of central banks and active traders like himself.
Gundlach also discouraged investors from index funds pegged to the Barclays U.S. Aggregate Bond Index, saying "very few people are going to want to own this thing" when they see 12-month trailing returns. The index, which tracks the broader debt market the way the S&P 500 tracks the stock market, declined 0.12% in the first quarter, largely because U.S. Treasuries and government-backed mortgage debt have gained a larger share of the index, according to a Wall Street Journal story published April 2.
