(Yahoo!Finance) - The coffee, bottled water, and investment insights were flowing from DoubleLine Capital's first investor day at its new vibe-filled office in Tampa, Florida this week.
Yahoo Finance got exclusive access to the DoubeLine team — led by the CEO Jeffrey Gundlach — at its new digs just as markets are beginning to flare up again amid fears of a heavy-handed Federal Reserve.
Here are several top calls or insights from the House of Gundlach from our trip. The comments have been edited and condensed for clarity.
DoubleLine Capital Founder & CEO Jeffrey Gundlach
On the potential for a hard or soft economic landing:
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"We have been preparing for a hard landing at DoubleLine. People are always asking me this question: how bad the recession is going to be. It doesn't matter as long as we're going into recession. You have to have certain degree of protection. In either case, you need an umbrella."
On one of the biggest market risks for 2023 no one is thinking of:
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"I don't know if it's a risk for this year or not the months ahead, but I think China taking over Taiwan is a very significant risk. They [China] love the fact I'm sure that we are destroying a lot of our munitions in defense of Ukraine, which obviously depletes our ability to arm Taiwan. So they'd love us to blow up all our stuff in Ukraine. That balloon coming over, there's a lot of odd things going on that one should think that the risk of a greater escalation of hostilities is the odds on case."
On the market risks associated with the ongoing Russia-Ukraine war:
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"I don't think the Russia-Ukraine war is really the problem. The Ukraine war is a problem for the future because we're depleting our munitions and we're wasting money on it, which is just another piece of the whole budget problem. I think Taiwan's the bigger problem because we have not been very good at articulating a stance on Taiwan, except off the cuff. President Biden has said we are going to defend Taiwan. That's the commitment we made. I don't think we have the ability to do that. Where are we going to get the money from? We don't have any money. We're running a huge budget deficit. It's still a massive percentage of GDP. And don't forget that zero interest rates really helped keep that deficit down because you were funding the deficits at nearly zero interest rates."
DoubleLine Capital Deputy Chief Investment Officer Jeff Sherman
On the possibility of a recession:
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"It's this policy where we're used to the Fed inducing a recession. They will likely induce one again, but it's the timing that's really not unknown. But for right now, the economy still looks okay."
On where investors should be looking:
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"Well, I think right now hiding in T-bills is not a bad trade. That's not talking our book. I'm just saying you can go buy them directly from the government. You can have a government money market fund out there. And so I think it's important to realize that what you were clamoring for 18 months ago was yield. It's everywhere today."
DoubleLine Capital Investment Grade Corporate Credit Manager Monica Erickson
On corporate fundamentals coming out of the recent earnings season:
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"So this weakness in earnings in the fourth quarter really is much more of an equity story, less of a credit story. Now going forward, we are definitely watching to see what areas, what sectors are going to be weak this year. If you look at consensus estimates, it's really in the energy sector and in materials. Energy is coming off an incredibly strong year last year, and it tends to be a pretty small part of the investment grade market. So the bottom line is I think the earnings picture looks pretty benign for investment grade credit, just because energy is such a small part of the market and it's really related to tough comparisons. Balance sheets are still strong."
DoubleLine Capital International Fixed Income Director Luz Padilla
On the demand for India investments amid Adani short-seller fallout:
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"Certainly for the Adani debt it has been sort of almost a tale of two types of investors. Distressed investors have come in and snapped up some of those [Adani] bonds. And then what we call real money investors or maybe crossover investors, they couldn't find the doors fast enough. Adani has always had let's say a checkered past. So that's something that if you didn't know that going in you probably hadn't done a lot of research on it. It's interesting because we've been talking to some local analysts and basically some of the commentary is there always has been let's say some concern regarding the transparency of that company. But when you look at the hard assets that they have, the products and services that they generate, they seem to provide a real value proposition."
DoubleLine Capital Structured Products Portfolio Manager Ken Shinoda
On the housing market outlook:
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"I still think it [the housing market correction] has room to run. There's a lot of new homes that were built and I think that those homes need to get flushed to the market and that's where the big discounting is going to come from. All the home builders saw the big run up in prices. They all went out and started building supply to make profits off that run up in price and now the supply has hit, but the demand is weak and so they're going to have to cut those prices. So I think there's a little bit more room to run in the housing decline. I think down 10% or so [from the peak], a little bit more than that nationwide is probably where we shake out."
For Yahoo Finance's full interview with DoubeLine Capital founder and CEO Jeffrey Gundlach, tune in below:
By Brian Sozzi · Executive Editor
