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Jeffrey Gundlach - S&P 500 Headed To New Lows

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by: Bill Kort
Bill Kort
Long only, blogger, long-term horizon, macro

CNBC felt Gundlach's commentary to be so valuable, so prescient that they ran this banner headline, "Jeffrey Gundlach says the S&P 500 is headed to new lows: 'I'm pretty sure this is a bear market'", two days in a row. By the way, we are already very close to the S&P's low of the year. A break to new lows is not a very big reach or outlier prediction to make.

Why should we care what Gundlach thinks?

Well, CNBC thinks we should care because Jeffrey, in their mind, has made a couple of good calls recently. For example:

Gundlach predicted in March that the closely watched 10-year Treasury yield would hit 3 percent and send stocks tumbling. His call came true a few months ago, as October was one of the worst months for U.S. stocks since the financial crisis.

It came to pass September 18, nine days before the Fed bumped the target rate on Fed funds 25 basis points to a rage of 2.00% tor 2.25% (9/27/18). It did roil the market. Just about every pundit CNBC trotted out was predicting that if the Fed moved rates higher the market would go down. For most of the month of March, when Gundlach made this staggering (?) prediction, the 10-year was trading between 2.80% to 2.85%… not very far from his predicted target.

The Fed was talking raising rates. You'd have to be pretty dim not to think the 10-year could trade above a 3% yield when that happened… pretty lame for CNBC to credit Gundlach any predictive chops on this call. Interestingly that 10-year closed back at a 2.81% yield on Tuesday, 12/18/18. Interestingly, based on the above reasoning the market should be rallying. Nobody seems to be making that case.


Jeffrey Gundlach, The Bond King

Gundlach revealed in February that he was betting against Facebook shares. He said his short was due to falling public perceptions of the company. Facebook's (NASDAQ:FB) stock is down more than 13 percent since Gundlach's call.

This was a good call, but not unique to Gundlach based on information available at the time.

He also in 2017 envisioned bitcoin cratering, saying that "if you short bitcoin today, you'll make money." At the time, bitcoin traded at about $16,000. The cryptocurrency now trades at about $3,400, losing about 75 percent of its value this year.

Again, this is a call that was not rocket science as most credible investors (including Warren Buffett) thought the cybercurrency was a house of cards.

So, again, I ask, why the banner headlines on his prediction about new lows coming in the market? My answer is, this attention to Gundlach's predictions is unwarranted.

From my perspective in recent years Gundlach's predictive talents have been pretty unimpressive and unprofitable. I give you a few examples from the Kort Sessions' archives, circa 2015 and 2016, the last time the market experience a real sinking spell:

Excerpt from "Two major questions facing mankind" (March 15, 2015/S&P 500 2085):

"But, given the growing signs of weakness at home and abroad, hiking rates in the near term would make the folks at the Fed a "bunch of blockheads," contends Jeffrey Gundlach, the head of the DoubleLine Asset Management complex. (If you are a Wall Street Journal subscriber, you may find link to Barron's article here -"Global Markets vs. Reality: The Great Divide" )

Excerpt from "Help! Plus more piling on"(October 5, 2015/S&P 500-2019):

With the market on the ropes earlier last week, two well-known pundits (hedge fund operators), Carl Icahn and Jeffrey Gundlach, tried to give it their best shots to take the market lower. Mr. Icahn is seeing "danger ahead", the potential of another 2007 bubble bursting, was out warning about the evils of debt, financial engineering (something he is expert at). He has great things to say about Apple (a very large Icahn position), while badmouthing others using similar policies. So, he likes AAPL and must be short other equities and junk bonds. This is 'talking your own book' in the highest order. William Watts, a contributor to MarketWatch, takes Icahn to task in "Why Icahn's Danger Ahead video is funny, not scary." Then there is Doubline Capital's Jeffrey Gundlach, essentially out doing the same thing in this little piece, "Doubleline's Gundlach: Expect 'another down wave'. "This is not new news. It is just a couple of guys with big reputations talking their own books… piling on (a weak market)!

Excerpt from "I went to cash today" (January 31, 2016/ S&P 500 1932):

This would probably never be my call. I am an investor, not a market timer. I buy companies, not group-think. A lot of negative group-think seems to be going around these days. My title was the call of CNBC's FastMoney contributor, Brian Kelly, last Friday (1/29/16). The theory behind this bold move was that the Fed's tight money policy was going to drive our economy and market into the ditch. Hmm, where have we heard this before? Oh yes, we heard from the new 'Bond King', Jeff Gundlach, a-week-ago Friday. This video of Gundlach's actual speech to an ETF conference in Florida gives a real flavor for the hype and urgency he lends to his critique of Fed policy. I love this video. It is a quintessential example of the fear stampede being generated by the media and punditry … a fear stampede with little or no merit.

Excerpt from 'Pity the Fool" (September 5, 2016/S&P 500 2168):

  • Jeff Gundlach (July 29 interview with Reuters): "Sell everything. Nothing here looks good." (except gold, which has declined since then) Twenty-six months later (September 29, 2018)the S&P 500 peaked a 2940… plus almost 50%. Even in the current correction we are still up over 400 points from the level most of these excerpts were taken from.

Based on the above four examples, I defy anyone to tell me the value of listening to any of Gundlach's pronouncements on the market. I ask again why CNBC felt compelled to report on these pronouncements twice (with emphasis)?

My only answer is that it is bad news and scary, and it can gather eyeballs to their programing. Our species seems to find bad news to be a magnet. Over the past few weeks CNBC has been having a feeding frenzy on the flood of negative opinion that always bubbles up in weak markets. They should be ashamed as they are providing many with useless information that might drive some to make bad decisions.

I hope this piece helps you separate the wheat from the chaff.

What's your take?

P.S. "Alan Greenspan has a new warning for investors: 'run for cover'". This commentary from Greenspan gives me more confidence that all is not lost. If you remember "irrational exuberance", that warning came in December 1996. Over the next four years the market advanced another 100%. He was eventually right. Unfortunately, he missed the housing crisis. This is but another example of CNBC making its usual negative case (especially when the market is under severe pressure) using a so-called expert who, in the final analysis, has no credibility.