Gundlach Doubles Down on Weak-Dollar Call After Resilient 2019

Katherine Greifeld and John Gittelsohn

(Bloomberg) -- Billionaire money manager Jeffrey Gundlach said his strongest market conviction is that the still-resilient dollar will weaken.

The greenback has largely defied expectations for its demise, with the Bloomberg Dollar Spot Index ending last year less than 1% lower as foreign-exchange volatility dwindled. But the DoubleLine Capital chief executive officer said growing U.S. government and trade deficits, a steepening yield curve and a pull-back in foreign investment may finally hit the currency.

“My highest conviction idea is that the dollar will weaken,” Gundlach said Tuesday on his annual “Just Markets” webcast. “As foreigners start to divest from the United States, which I think is going to be a theme of the next few years -- it may start this year -- you’ll start to see a much weaker dollar.”

Gundlach, whose Los Angeles-based fund company oversees almost $150 billion in assets, has been warning of a potential dollar slide since at least early January 2018. Should that decline materialize, Gundlach expects it to benefit gold and other commodity prices.

The money manager said he doesn’t expect broad stock and bond market returns this year to “come anywhere close to 2019,” when virtually all major assets delivered once-a-decade performances. However, investors can expect higher volatility in the decade ahead, according to Gundlach.

“It won’t be the roaring ’20s and it won’t be the boring ’20s,” he said.

Other takeaways from the webcast:

Forward economic indicators are “flashing yellow” for recession, the bond manager said. He continued to put the odds of a U.S. recession by the end of 2020 at 30%-35%, though he warned that the probability would rise if there’s lower purchasing managers and consumer confidence data as well as higher unemployment.On the U.S. Treasury market, Gundlach said he sees a steeper yield curve and recommended being defensive on the long end.Negative interest rates are “fatal” for banks, according to Gundlach, who praised Federal Reserve Chairman Jerome Powell for not supporting them. Regions that have instituted negative rates have seen their banking sectors underperform the U.S., Gundlach said.Bitcoin could climb as high as $15,000 in 2020, Gundlach said, adding that he doesn’t own any of the digital currency.On politics, Gundlach said Bernie Sanders is the likeliest candidate to secure the Democratic nomination for president. The biggest risk to markets in 2020 would be Sanders “becoming more believed-in,” he said.

--With assistance from Melissa Karsh and Luke Kawa.

To contact the reporters on this story: Katherine Greifeld in New York at kgreifeld@bloomberg.net;John Gittelsohn in Los Angeles at johngitt@bloomberg.net

To contact the editors responsible for this story: Sam Mamudi at smamudi@bloomberg.net, Josh Friedman, Alan Mirabella

For more articles like this, please visit us at bloomberg.com

©2020 Bloomberg L.P.