NOTE: Earlier, we wrote that this story appeared in Bloomberg Businessweek. It actually appears in Bloomberg Markets.
The cover story of the new Bloomberg Markets is an excellent and comprehensive profile of bond god Jeff Gundlach.
The reporters Seth Lubove and Alexis Leondis also laid out his longer term outlook for the world as the economy enters what he call “phase three.”
Deeply indebted countries and companies, which Gundlach doesn’t name, will default sometime after 2013. Central banks may forestall these defaults by pumping even more money into the economy — at the risk of higher inflation in coming years.
“I’m waiting for something to go kaboom,” Gundlach says in his office a week before the L.A. speech. “If phase three takes two years, it’s worth waiting for. The markets don’t have lots of opportunity now.”
According to the report, Gundlach recommends investors start positioning their portfolios now as there will be little warning when the “kaboom” happens.
For now, Gundlach recommends buying gemstones, art, commercial real estate, and other hard assets.
Gundlach’s DoubleLine Funds plans to off a long-short equity fund to provide inflation-adjusted returns. He’s also sitting on cash because he expects there to eventually be extraordinary opportunities when asset prices tumble.
Adding colour to his call, Gundlach discusses U.S. policy:
In the U.S., Gundlach sees a postelection, pre-fiscal cliff economy that’s growing anemically and only because of consumer loans, government stimulus and the Fed. He says inflation could jump by 2 percentage points if the Fed ramps up its purchases of government debt beyond what it has done so far.
Led by Chairman Ben S. Bernanke, the Fed has purchased $2.3 trillion in securities in two rounds of quantitative easing since 2008. And it may extend its third round through 2013 and climb past a total of $1 trillion in purchases, according to economists interviewed by Bloomberg.
“You’re just going to build up pressure in the pressure cooker, and when it blows, the lid will blow sky-high, and that’s when you get to phase three,” Gundlach says.
The profile goes into his prescient calls, his love for art, his famous webcasts, and his war with Morningstar.
Read the whole story at Bloomberg.com >