Tag: Jeff Gundlach

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Early Innings for Gold and Silver?

Since January 1, the price of gold through October 1 has risen by 47.6% and the price of silver has risen by 63.7%.  Are we in the early stages of a bull market for precious metals?

The primary reasons for continued price appreciation are 1) ongoing purchases of gold by central banks; 2) individual investors are now taking an interest in precious metals; and 3) physical supply deficits.  Major investment firms are now getting on board the gold train.

On June 10, JP Morgan Research published a bullish opinion on gold.  They wrote, “After three consecutive years of more than 1,000 (metric) tonnes of CB (central bank) gold purchases, the structural trend of higher CB buying has further to run in 2025 and 2026.”  They cited policy uncertainty, stagflation or recession, lower interest rates, geopolitical risks, and diversification away from US dollar reserve holdings by central banks as reasons to include gold in investment portfolios as “one of the most optimal hedges.”

On September 16, the Chief Investment Officer of Morgan Stanley, Mike Wilson, recommended that investors shift from a traditional 60/40 allocation of equities/fixed income to a 60/20/20 allocation of equities/fixed income/gold.  As US Treasury securities are losing some of their safe-haven status, Wilson wrote: “Gold is now the anti-fragile asset to own, rather than Treasuries.”

On September 17, Jeff Gundlach, Founder and CEO of DoubleLine Capital, recommended in a webcast that investors allocate 25% to gold.  Gundlach has made positive comments about gold in the past, so this was not a surprise.  DoubleLine Capital manages fixed income and has no precious metals investment products at this time, so Gundlach’s recommendation is unusual because it cannot benefit his firm.  Gundlach commented: “So I’m still hanging in there owning gold until such time as we get a totally different regime as regards the deficit situation and the kind of international flow situation, which is now kind of not benefiting the United States.  And I think that’s going to be a trend for the next few years.”

On a global basis, the current valuations of equities (common and preferred stocks), fixed income (sovereign, corporate, municipal, and asset-backed securities), real estate, and precious metals are approximately as follows:

      • Equities                                          $124 trillion
      • Fixed Income                              $140 trillion
      • Real Estate-Commercial       $  58 trillion
      • Real Estate-Residential         $287 trillion
      • Gold                                                 $  27 trillion
      • Silver                                               $  0.2 trillion

While neither Wilson nor Gundlach included real estate in their allocation, they represent significant portions of net worth for many families.  To get close to the target allocation levels that they talk about for gold, the price of gold would have to rise substantially, or the price of other financial assets would have to decline substantially, or it could be a combination of both.  Despite the logic supporting precious metals, few investment advisors are including them in their model portfolio allocations.  Thus, I expect gold and silver to continue their upward trends as more individual investors start to participate in the rally.

If you have any questions or comments, please contact me.

Robert G. Kahl
CFA, CPA, MBA

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Political Dysfunction Reaches New Heights

Regardless of the election outcome, the prognosis for political cooperation is poor.  In the past, many of us recall political debates that that had a sense of decorum.  It also seemed as though the distinctions between political parties were more subtle.

This year, the first Presidential debate reminded us of a high school cafeteria food fight.  It appears that the two major political parties are incapable of agreeing on much of anything.  As a result, much of the activity in Washington, DC seems counterproductive and theatrical in nature.

Jeff Gundlach, CEO of Doubleline Capital, has a reputation for being outspoken and having a better batting average than many when making predictions.  At the start of 2016, he predicted that Donald J. Trump would become the next President when he had not yet emerged as the winner from the Republican primary fracas.  Gundlach has never endorsed Trump and in fact has criticized him for relying too much on hyperbole such as “the best economy ever.” Gundlach took issue with the description because economic growth has relied to a large degree on government deficit spending.

On a Schwab webcast last week, Gundlach once again predicted that President Trump would be re-elected.  Gundlach said, “The polls right now say he isn’t going to win, but they said that four years ago.”  He referred to a chart from Predictit that showed the betting odds of a Trump win at about 42% now versus 13% in 2016.  In contrast to the flip in the betting odds from four years ago, Gundlach qualified his prediction by saying “my conviction is way lower than it was four years ago.”

Gundlach attributes much of Trump’s advantage to avoidance of uncertainty.  “You might dislike Trump or some of his policies, but risk is not what you’re getting with him, particularly compared to turning the presidency over to another party, and particularly when that party’s candidate isn’t saying what some of his policy positions are.”

Living up to his reputation for being outspoken (especially for a bond manager), Gundlach predicted that by 2027, economic inequality, strained by fiscal and monetary policy, would come to the point of some sort of revolution.  As for the 2024 election, he had this to say, “Well, if you think 2020 is weird, just wait for 2024.  You ain’t seen nothing yet.”

Another round of corona virus aid and economic stimulus was postponed until after the election.  A wide gap exists between the two parties regarding the total size of the aid/stimulus package, how much aid should be given to state and local governments, enhanced unemployment benefits, special liability protection for businesses, and other issues.

The Congressional Budget Office projects the budget deficit to decline from a record level of 16.0% of GDP ($3.3 trillion) in fiscal year 2020 to 8.6% of GDP for the fiscal year ending September 30, 2021.  Of course, the projection includes a variety of assumptions that are subject to change.  Regardless of the election outcome, we can expect the continuation of large budget deficits and dysfunction in the political arena.

If you have any questions, please contact me.

Sincerely,
Robert G. Kahl
CFA, CPA, MBA