Those who happen to call the markets right and expose consensus thinking in one year are invariably accorded enhanced status and media bragging rights the next, although it rarely follows that they are right the next year as well. However, as things stand, it is hard to quibble with too much that Jeff Gundlach, the big name US investor who correctly warned that bond yields would fall not rise in 2014, thereby confounding the majority professional view, has to say about the outlook for 2015.
Here is an extract from Gundlach’s remarks at an industry conference, as reported by ETF Report.
When it comes to interest-rate trends, we’ve seen U.S., German, Swiss, Japan yields all drop to a point where we are now paying Switzerland to own 10-year debt there. Even at around 1.80 percent for U.S. 10-year Treasury yields, that’s competitive and should keep demand for U.S. Treasurys strong and rates lower.
“The U.S. is at an advantage, with U.S. yields at 1.80 percent. That represents strong relative value, sadly,” he said. Treasurys yields should remain on a downward path for now, but the yield curve should continue to flatten, he says. “If the Fed raises rates for philosophic reasons, it may be short-lived,” he said of a rate rise based solely on not wanting rates at zero.
The Europeans watched the U.S. and Japan have little success with QE, so it will probably have very little success as well, he says: “The S&P 500 massively outperformed the all-world index last year, and it’s likely the U.S. will continue to have decent performance against most markets.”
The US Dollar
“The dollar has been strong against most currencies in world. This is going to remain a theme,” Gundlach said. “Currency trends last a long time; they tend to be multiyear affairs.”
Commodities had a wild ride last year. It started out strongly and at midyear tanked. The only thing that did well was gold. Interestingly, gold was “loathed” at the beginning of the year, but it has been performing “a lot better than you think,” even though a lot of investors have given up on it, he said. “History suggests gold remains a safe haven in times of turmoil,” he said. “Gold seems to be predicting trouble correctly. I’m bullish on gold. I have increased our position in the last few weeks.”
My only quibble with this is about the likelihood of continued US relative equity market performance, as per my comment yesterday. The one thing we know for sure is that consensus thinking will be wrong in a number of important respects when we look back on this year in 11 months time. Gundlach is certainly right that it will take time for the oil market to adjust to the new supply-demand balance. At some point you can be confident that today’s deflation fears will begin to morph into rising inflation expectations, and watching for that turning point – which might not come for 18-24 months, and even further out if the Eurozone runs into new trouble – is the #1 strategic imperative for investors.