The recovery in the US housing market is over, says Jeffrey Gundlach. The head of US investment manager DoubleLine Capital made his reputation as one of the world’s leading bond fund managers, with many viewing him as the new ‘bond king’, taking the crown of Bill Gross at Pimco.
In a presentation last week, he noted that “virtually all” measures of housing activity have slowed notably since the Federal Reserve started to talk about reducing quantitative easing (QE), says Joshua Brown on The Reformed Broker blog.
It’s hardly been a strong recovery compared to the past in any case, which Gundlach puts down to the fact that “millennials” – the youth of today – are less keen to escape their parents and set up house on their own.
Gundlach is also concerned about stocks in general. In particular, he highlights the fact that levels of margin debt (using borrowed money to buy shares) are now at record levels, even when adjusted for inflation.
The big problem is that when shares start to fall, this level of leverage is likely to make the decline harder and faster. And given that much of the bull market has been dependent on QE, its steady withdrawal does not bode well either.
He is less bearish on Chinese stocks, noting that “a bottom might be at hand”. But that said, he’s in no rush to buy in, particularly given the risk of China’s economic growth disappointing expectations this year.
However, Gundlach is bullish on gold miners. He believes that gold has fallen as far as it’s going to – he thinks the yellow metal is now being held by “strong hands” (people who are holding for the long run, rather than short-term gain), so if you still own gold, he says, then “for god’s sake don’t sell it here!”, notes Brown.
And if this is the case, then gold mining stocks look undervalued relative to their reserves, particularly if the gold price starts rising strongly again.