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By Eric Jacobson | 12-23-2009 12:58 PM

Gundlach: Cycle of Default Not Over

The DoubleLine manager says he's anticipating a fairly sharp move up in the dollar and down in risk in 2010.

Jacobson: Let me change gears then and ask you a little bit about kind of where we are today in the market relative to the last couple years. They who are familiar with the story of your fund that you ran at TCW know that you were a very big user of agency mortgage securities for many years, and that going into the crisis, one of the big successes that you had was shifting gears, recognizing the value in non-agency mortgages.

Maybe talk a little bit about how things went this year for that market. I know you can't really predict where things will be when you are up and running with a public fund, but kind of a take us up to today in terms of the value there, what you see, and if there is more gas in that tank, if you will.

Gundlach: Yeah. The markets have certainly changed many times in the past couple of years. They have changed very dramatically since the bottom in March, which I was fortunate enough to basically signal in a call that I did on my mutual fund. That call was called "You're Too Bearish," and that was done March 12, because my idea was that as bad as things seemed, a rally was overdue, and a significant one.

The way I framed it was I said it will be a rally that is too big to look past. If you miss that rally, you'll be in a very painful place, and you get in that horrible situation where you don't know what to do, because you still feel the same way, but you're scared about the price movement.

We did have agency securities dominate our funds going into the credit crisis. We had very high government credit in all of our strategies. This is one of the reasons for the successful record.

And as you point out, when the non-agency market collapsed along with other credit, not only did we see that as an opportunity, but beyond that, we had the team with by far the greatest resources in terms of personnel, and in terms of systems, in terms of experience in managing mortgages of all stripes.

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