Jeff Gundlach Hastily Threw Together This Presentation To Explain Why The Bond Markets Crumbled And Why It's Foolish To Sell Now

Jeffrey Gundlach's Presentation

Bond god Jeff Gundlach hosted a surprise webcast this afternoon titled: “What in the World is Going On?” Redux.

“We arranged this hastily,” he said.

The title is a play on his June 4 webcast, where he aimed to address the return of volatility as reflected by rising interest rates and the spectacular crash in the Japanese stock market.

However, since that call, rates only continued to surge, bringing down bonds all over the world.

Of note is the 10-year Treasury rate, which broke through the 2.5%, a level that Gundlach said would not be breached.

So what happened?

Gundlach explained that the financial markets got sucked into a liquidation cycle. It probably started with a couple of leveraged players taking risk off. This is followed by prices dropping and interest rates rising. Then more leveraged players get margin calls.  More selling occurs, people freak out, and this cycle perpetuates.

But that perpetual selling may have ended.

“The liquidation cycle appears to have run its course,” said Gundlach noting the recent rebound in various asset classes.

Click Here To See Gundlach’s Whole Presentation »
Gundlach, a Treasury bull, emphasised that in the universe of bonds, Treasuries have actually been a clear outperforming bond sector

He thinks anyone selling bond funds right now is making a mistake, as bonds are now offering more value. He reiterated his prediction that the 10-year would eventually head to 1.7%.

“Gold looks like death,” he said noting that the yellow metal now appears to be a decent contrarian buy.  However, he warned that it could go to $1,000 on momentum.

“Gold has a very good downside upside ratio,” he added. He believes it could go down as much as 20% before going up 50% from current levels.

But if there were a contrarian idea that he liked more than gold, it’s emerging market stocks.  He noted that the ratio of the S&P 500 to the MSCI Emerging Markets has gone parabolic.  He thinks this is bound to correct itself soon.

As usual, Gundlach offered a deck of charts that he used to frame his thesis.

First of all, Gundlach made very clear that the bond sell off had nothing to do with inflation.

There's no inflation in the Federal Reserve's favourite measure of prices.

There's no inflation in the commodities index.

Only a handful of commodity prices are up.

Year-to-date, almost everything is down.

Here's another way to look at the commodity sell-off.

The U.S. dollar has strengthened a bit in recent periods.

Japan's stock market is horrific, but China's Shanghai Composite has been tumbling lately.

The U.S. stock market has exploded relative to the Emerging Market stocks.

Brazil has one of the ugliest EM stock markets in the world.

Here's a closer look at China.

Turmoil in China can be seen its surging interbank lending rates, which is a sign of financial stress.

The U.S. employment situation continues to be indicative.

The U.S. housing market is a bright spot.

But surging mortgage rates are radically changing the affordability equation.

Here's some perspective on the 10-Year, which appears to have ended its liquidation cycle in recent days.

The yield curve is getting steeper.

High yield bonds got smashed.

Subprime mortgages are also struggling.

Investment grade bonds have also suffered.

Here's a closer look at municipal bonds.

Emerging market stocks are looking like a good contrarian buy.

Gundlach is not a fan of real estate investment trusts.

Jeffrey Gundlach's Presentation

Jeffrey Gundlach's Presentation

Jeffrey Gundlach's Presentation

Jeffrey Gundlach's Presentation

Jeffrey Gundlach's Presentation

Jeffrey Gundlach's Presentation

Jeffrey Gundlach's Presentation

Jeffrey Gundlach's Presentation

Jeffrey Gundlach's Presentation

Jeffrey Gundlach's Presentation

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