Gundlach: European Shockwaves Far From Over
DoubleLine CEO, CIO, and portfolio manager Jeffrey Gundlach says the European debt crisis is not close to being 50% priced into the market yet.
DoubleLine CEO, CIO, and portfolio manager Jeffrey Gundlach says the European debt crisis is not close to being 50% priced into the market yet.
Jason Stipp: I'm Jason Stipp for Morningstar. As the crisis in Europe continues to cause intermittent shock waves throughout the global markets, we're touching base with some noted investment managers to get their take on the situation and their outlook. I have the pleasure today of speaking today with DoubleLine's Jeffrey Gundlach. He is the manager of the DoubleLine Total Return Bond Fund. Thanks so much for joining me, Jeffrey.
Jeffrey Gundlach: Well, thank you, Jason.
Stipp: First question for you: As the issues and problems in Europe have begun to unfold, I think it's reminding a lot of investors of the subprime crisis, and people are starting to worry about what banks are holding. And banks, according to some of the spreads we've been seeing, are maybe not trusting each other as much as they have before. To what extent do you think the issues in Europe can be contained in Europe? And to what extent is there a global credit threat because of the sovereign debt woes we've seen there?
Gundlach: I think that the situation in Europe is starting to be taken seriously by investors appropriately. I think that the debt to GDP ratios in the developed countries, particularly in the south of Europe, are getting a lot of appropriate scrutiny. And it seems to me unlikely that that situation's going to be resolved just by throwing a one trillion dollar bailout package at the social system. I think that this is a story that is going to play out for months to come, and, ultimately, quarters to come, as investors reassess the debt logged nature of the developed global economy.
So it's interesting that, as these items got into the news, we started to see extreme volatility at high price levels in credit markets and in the equity markets. That's always a sign that a reversal is likely to be starting. When you start to see a one way gradualistic move, which we saw pretty much for 12 months uninterrupted, suddenly turned into very highly volatile day-to-day trading, it usually means that positions are starting to change hands, and smart money is taking profits, and a reversal is at hand. So I think this is an issue that is not close to being 50% priced into the market yet.
Stipp: Do you think that this is an issue that is just going to be a problem for investors in Europe? Or do you have concerns that, because we have such a much more of a global banking system now, and a lot of counter party in the U.S. to the European banks, is this a concern that U.S. investors should really have on their radars? And what kind of shock waves, fundamental shock waves, could we see?
Gundlach: Well, I think it certainly affects all investors, not just investors in European debt. I think that the big issue here is an awareness that the economies of the developed world have been propelled by excessive debt burdens, first at the consumer level, particularly the United States, but in recent years, at the government level. And many of these issues are starting to come home to roost, so to speak. And investors are going to be reassessing global growth, and reassessing the ability for governments to stimulate economies to take up the slack from lack of consumer consumption. So I think this affects the growth rate that people are going to be using for the global economy. And, in that way, it affects all nature of global investments.
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