"Policy shock' looms ahead, Gundlach warns

OCT 04, 2010
DoubleLine Capital LLC chief executive Jeffrey Gundlach predicts that investors can expect a “radical policy shock” from Washington that will zap the economy and push it back into negative territory. In a keynote speech last Wednesday in Chicago at Morningstar Inc.'s annual conference, he forecast that Congress will raise taxes after the midterm elections in November in a bid to reduce the government's crushing budget deficit. “Over the last 25 years, the policies have been predictable and stable,” he said. “The debt will need to be addressed with policy changes.” Mr. Gundlach warned that the next several years “will be one of the most difficult periods ... that we'll face in our investing careers.” Still, the former chief investment officer of TCW Group Inc. offered suggestions for advisers. At the top of that list: long-term Treasury bonds. “If you're going to own government bonds, be at the long end,” Mr. Gundlach said. He also suggested that advisers consider purchasing mortgage-backed bonds issued by high-quality borrowers. Such debt offerings are relatively cheap, Mr. Gundlach said, and could generate up to a 5% yield during the tough times ahead. He also recommended municipal bonds, saying, “I think the spreads that exist look pretty attractive today.” E-mail Lisa Shidler at [email protected].

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