Post on 16-May-2020
Jeff Gundlach
Presenter Chief Executive Officer & Chief Investment Officer DoubleLine Capital
Keynote Address:
2
This Time It’s Different
3
4
Past Fed Tightening Cycles
Source: ValueWalk, “Taking a Lesson From Two Decades of Fed Rate Hikes” by Clayton Brown, July 1, 2014
5
Fed Funds Target Rate and US Recessions 1/1/1982 -9/30/2014
6
Fed Hiking Cycles and Economic Cycles As of 10/21/14
*Note: June 2015 rate hike based on Bloomberg analyst surveys. Recessions according to NBER. Source: Bloomberg; DoubleLine; Credit Suisse
First Rate Hike Preceding Recession Hiking Cycle
Starting
Funds Rate
Target (%) Date Size (bps) Trough Date
Months
to 1st
Fed Hike
Number
of Rate
Hikes
Size
(bps)
Length
(months)
5.88 Oct-86 12 Nov-82 48 4 137 9
6.50 Feb-88 25 No Recession 8 325 12
3.00 Feb-94 25 Mar-91 35 7 300 13
5.25 Mar-97 25 No Recession 1 25 1
4.75 Jun-99 25 No Recession 6 175 12
1.00 Jun-04 25 Nov-01 32 17 425 25
Current Cycle
0.25 Jun-15* Jun-09 72*
7
Current Economic Cycle vs. Previous Cycles As of 10/21/14
Note: Economic expansions and contractions are according to NBER. Source: Bloomberg; DoubleLine
17.5 21.6
18.2
11.1
18.0
38.7
26.6
35.0
58.4
0
10
20
30
40
50
60
70
1854-2009(33 cycles)
1854-1919(16 cycles)
1919-1945(6 cycles)
1945-2009(11 cycles)
Current Cycle
Nu
mb
er
of
Mo
nth
s
Length of Economic Cycles Expansions and Contractions
Conraction
Expansion
64 months and counting
8
Market Implied Rates vs. FED
Source: Bloomberg
9
U.S. Rates: Fed Funds Forward Curve
Source: StateStreet Fed Fund projections annually. Each colored line represents the consensus opinion projections given each Fed meeting.
“Anticipating a Fed rate hike is like waiting for a friend who
never shows up” – Dan Loeb
10
Probability of Fed Rate Hike by Dec 2015
Source: Bloomberg; StateStreet
11
12
US, UK and Euro Seem Far From Hiking
Notes: As of 9/10/14 Source: Goldman Sachs, Global Economics Weekly
13
GDP Forecasts January 1, 2004 through 2016 Estimates
Source: DoubleLine, Bloomberg GDP = Gross Domestic Product. The monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. GDP CYOY = GDP Year-Over-Year. EHGDUSY Index =US Real GDP. ECFC = Economic Forecasts
14
Median Economist Forecasts of U.S. Real GDP Annually through September 30, 2014
Source: DoubleLine, Bloomberg GDP = Gross Domestic Product. The monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. ECGDUS 14 index = US GDP Economic Forecasts quarter-over-quarter and year-over-year.
1.5
1.7
1.9
2.1
2.3
2.5
2.7
2.9
3.1
3.3
3.5
-520 -480 -440 -400 -360 -320 -280 -240 -200 -160 -120 -80 -40 0
Me
dia
n E
con
om
ist
Fore
cast
fo
r R
eal
GD
P a
t Y
ear
En
d
2011
2012
2013
2014
Days Leading Up to Forecast (Trading Days)
15
Revisions to China Growth Expectations January 1, 2010 through October 15, 2014
Source: Bloomberg GDP = The gross domestic product is The monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis.
7
7.5
8
8.5
9
9.5
10
10.5
-520 -480 -440 -400 -360 -320 -280 -240 -200 -160 -120 -80 -40 0
Me
dia
n R
eal
GD
P F
ore
cast
(%
)
Median Forecast of China Real GDP (by year )
2010
2011
2012
2013
2014
Days Leading Up to Forecast (Trading Days)
The last 3 years have been a story of downward revisions to growth in China.
16
Global GDP Forecasts
17
10-year U.S. Treasury Yield Forecast for Year End 2014 July 11, 2013 through October 14, 2014
Notes: Median economist forecasts are based on Bloomberg survey data as of 8/13/14. Survey produced 9/2/14. Source: Bloomberg; DoubleLine
2.70%
2.20%
%
2.1
2.3
2.5
2.7
2.9
3.1
3.3
3.5
Bloomberg Median Economist Forecast for Year End 2014 and Actual 10y UST Yields
Median Economist Forecast
10y UST Yield
18
Global Bond Yield Change Year-To-Date (YTD) 2014 through 10/14/14
Notes: As of 10/14/14 Source: Bloomberg; Doubleline Bps = Basis points
-83 -82 -64 -92 -30 -9
-90 -136 -109
-185 -183 -210
-88 -93 -133
-174 -122
-28 -29
14
-43
310
-300
-200
-100
0
100
200
300
400
US
Can
ada
Mex
ico
Au
stra
lia
Jap
an
Swit
zerl
and
Un
ited
Kin
gdo
m
Fran
ce
Ger
man
y
Irel
and
Ital
y
Spai
n
Den
mar
k
No
rway
Swed
en
Po
lan
d
Turk
ey
Mal
aysi
a
Sin
gap
ore
Sou
th A
fric
a
Ind
ia
Ind
on
esia
Change in Global 10y Bond YTD (BPS)
19
German Bunds vs. U.S. Treasuries December 31, 1999 through October 15, 2014
Source: Bloomberg USGG10Y Index = Generic 10-year U.S. Treasury. GDBR10 Index = German Bund 10-year generic 10-yr treasury rates.
0%
1%
2%
3%
4%
5%
6%
7%
Yie
ld (
%)
10 Year US Treasury Yield
10 Year German Bund Yield
20 Source: Bianco Research
30 Year U.S. Treasury Total Returns January 1, 1974 through October 14, 2014
21
Global Bond Yield Forecast As of October 21, 2014
Source: Bloomberg Financial Services G7 = Group of Seven and includes the economic alliance of Canada, France, Germany, Great Britain, Italy, Japan and the US.
22
What Happened to 10-year U.S. Treasury Rates During the 2004-2006 Rate Hike Cycle? August 1, 2003 through September 30, 2007
Source: Bloomberg; DoubleLine USGG10YR Index = Generic 10 year US Treasury yields. Federal Funds Target Rates = federal funds rate is "the interest rate"[1] at which depository institutions actively trade balances held at the Federal Reserve, called federal funds, with each other, usually overnight, on an uncollateralized basis. You cannot invest directly in an index.
23
U.S. Interest Rates: U.S. Treasury 2-year vs. 10-year Spread August 8, 2004 through October 14, 2014
Source: Bloomberg; DoubleLine USGG10YR Index = Generic 10 year US Treasury yields. You cannot invest directly in an index.
24
High Yield Spreads and Fed Hiking Cycles As of 10/10/14
Source: Bloomberg; DoubleLine
2
4
6
8
10
12
14
16
18
20
04
/01
/1…
04
/01
/1…
04
/01
/1…
04
/01
/1…
04
/01
/1…
04
/01
/1…
04
/01
/1…
04
/01
/1…
04
/01
/1…
04
/01
/1…
04
/01
/1…
04
/01
/1…
04
/01
/1…
04
/01
/1…
04
/01
/1…
04
/01
/2…
04
/01
/2…
04
/01
/2…
04
/01
/2…
04
/01
/2…
04
/01
/2…
04
/01
/2…
04
/01
/2…
04
/01
/2…
04
/01
/2…
04
/01
/2…
04
/01
/2…
04
/01
/2…
04
/01
/2…
04
/01
/2…
Bar
clay
s H
Y S
pre
ad t
o 1
0Y
UST
%
Hiking Cycles HY Spread to 10Y UST
25
U.S. Core PCE
Core PCE = Personal Consumption Expenditures measures prices paid by consumers for goods and services without the volatility caused by movements in food and energy.
26
PriceStats vs. CPI for U.S.
CPI = Consumer Price Index produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services.
27
U.S. CPI Inflation
Source: Minack Advisors, Globall Outllok “Back to normal?”: October 2014 CPI = Consumer Price Index produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services.
28
Nominal Wages
29
FED Economic Slack Indicators January 1, 1985 through June 30, 2014
Source: Wall Street Journal
30
Inflation Adjusted Average Hourly Earnings January 1, 2007 through June 30, 2014
Source: Economic Policy Institute, Wall Street Journal, Bianco Research Inflation = A general increase in prices and fall in the purchasing value of money.
31
Minimum Wage Has Declined in Real Terms
32
Importing Deflation
33
Eurozone 2 year Yields October 1, 2013 through October 14, 2014
Source: DoubleLine, Bloomberg
34
U.S. Dollar Index Spot December 31, 2007 through October 21, 2014
Source: Bloomberg Financial Services, DoubleLine Capital LP DXY = DXY is the US Dollar Index (USDX) indicates the general value of the US dollar. Average exchange rates between the US dollar and six major world currencies. An investment cannot be made directly in an index.
35
Inflation Expectations April 26, 2007 through October 10, 2014
Source: Bloomberg, DoubleLine
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Perc
ent
(%)
4/2
6/2
00
7 -
10
/10
/20
14
Federal Reserve 5 Year Inflation Expectation
Five Year Five Years Forward
5 Year Breakevens
10 Year Breakevens
36
U.S. Breakeven Treasury Rates September 1, 2011 through October 14, 2014
Source: DoubleLine, Bloomberg
37
QE and Inflation Expectations January 1, 2008 through October 20,2014
Source: DoubleLine, Bloomberg
38
U.S. Commodities Last 5 Years October 14, 2009 through October 20, 2014
Source: Bloomberg CRY Index = CRB excess return index is an arithmetic average of commodity futures prices with monthly rebalancing. You cannot invest directly in an index.
39
Commodities: YTD Performance Year-To-Date through October 14, 2014
Source: Bloomberg DJUBS = Dow Jones Indices representing grain sector, energy, commodities as a general basket, and metals.
40
U.S. CPI and WTI October 14, 2004 through October 14, 2014
-100
-50
0
50
100
150
-3
-2
-1
0
1
2
3
4
5
6
WTI
Yo
Y %
CP
I Yo
Y %
US CPI
WTI YOY % (RHS)
Source: DoubleLine, Bloomberg CPI = Core Price Index produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services. WTI = West Texas Intermediate is a grade of crude oil described as light due to low density. RHS = Right Hand Side of the chart axis.
41
Eurozone CPI and Brent Crude October 14, 2004 through October 14, 2014
-100
-50
0
50
100
150
-1
0
1
2
3
4
5
Bre
nt
Cru
de
Yo
Y %
CP
I Yo
Y %
EZ CPI
Brent Crude YoY % (RHS)
Source: DoubleLine, Bloomberg CPI = Core Price Index produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services. WTI = West Texas Intermediate is a grade of crude oil described as light due to low density. RHS = Righ hand side of the chart.axis.
42
U.S. Breakevens and Oil October 8, 2011 through October 7, 2014
43
Breakeven Oil Prices
44
Primary Oil Importers
Source: Hellenic Shipping News, “EIA: China Market Overview” http://www.hellenicshippingnews.com/d5bc7b9c-66dc-4151-8d48-eb12e97dd716/
45
Federal Reserve is the Largest Holder of US Debt
http://www.ritholtz.com/blog/2013/10/all-holders-of-u-s-treasury-debt/ Source: Barry Ritholtz, The Big Picture, “All Holders of US Debt”, October 11, 2013
46
Who Owns US Government Debt
Source: FactCheck.org
47
Mandatory vs. Discretionary Spending 2013
Source: Congressional Budget Office
(Numbers in Billions of Dollars)
48
Drivers of US Debt
Source: Congressional Budget Office
49
U.S. Government Revenue vs. Expenditures
Source: Congressional Budget Office
50
Debt Storm and Global Rates
Source: Deutsche Bank, GFD, Haver
51
Fixed Income Liquidity
http://sfist.com/2014/09/05/the_severity_of_californias_drought.php#photo-7
52
BKLN Shares Outstanding
BKLN = Powershares Senior Loan Portfolio Shares Outstanding Index represents the current index shares outstanding.
53
Major U.S. Financial Institutions Leverage Ratios
Source: Grant Williams; “Things That Make you Go Hmmm…”
54
U.S. Single Adults Rising 6/1/1975 through 9/30/2014
55
An Aging Population
56
Where the Wealthiest Live
Source: Credit Suisse, Global Wealth Report 2014, October 2014
57
Where the Wealthiest Live
Jeff Gundlach
Presenter Chief Executive Officer & Chief Investment Officer DoubleLine Capital
Keynote Address: