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

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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: