DoubleLine's Gundlach: High-yield market flashing 'yellow' on recession (Also...the "Powell Put")

davfor

How much is too much?.....

Gundlach said Federal Reserve Chairman Jerome Powell on Friday pivoted from pragmatism to a “Powell Put” - that the Fed under his leadership will act like an option contract to prevent stocks from falling too much.

Since the “Powell Put” on Friday, the U.S. stock “market has been throwing a party,” Gundlach said.

https://www.reuters.com/article/us-funds-doubleline-gundlach/doublelines-gundlach-high-yield-market-flashing-yellow-on-recession-idUSKCN1P22FD

JoeD

Not a Gundlach fan, but he is spot on about the "Powell Put". Market reaction has been quite optimistic since the ole Fed backstop has made a return.

Meanwhile, asset bubbles can float about for a while longer. We can't have markets acting on their own, now, can we? Gotta prop them up.

AndyJ

It's always interesting to see what tiny tidbits reporters writing these mini-articles about a JG webcast pick out to highlight. Many of them are at least somewhat misleading, and leave out important details that may contradict the reporter's points. This one's no exception.

For just one example, he always goes thru a number of reasonable leading indicators of recessions ahead, and while a few are starting to roll over, most are not signalling a recession ... at least yet. These reporters mention ONE of those indicators and yell it out like it's the only game in town.

At the same time, they leave out an important piece of his talk around junk corporates (and loans, which the article never mentions): that he recommends using this nice bump (especially in leveraged loans) to sell -- for those who still have significant exposure there. (He may or may not be right, but it's an actionable opinion for consideration that I'm not hearing anyone else utter.)

And, they never even mention the big lurking danger in investment grade debt that JG discussed in detail (and has covered in every recent webcast). The lower end of IG corporate debt, BBB, has grown massively, and about half of it could be downgraded to junk if leverage risk was evaluated as it used to be. A downgrade affecting that wide a swath of corporates would likely set off a huge wave of selling that would roil the market bigtime.

Junkster

I never found Gundlach too adept at junk bonds as witnessed by his call for a crash right near the bottom in early 2016. I can find 1001 things I don’t like about junk corporate funds and especially bank loans funds. I was particularly negative on junk last year and hoping for something worse than what occurred. Yet here I sit with three junk bond funds. I take the rare Zweig buy signals very seriously - we have had two now since December 26 - and now another one of his rare momentum indicators is about to kick in - the 10 day advance decline ratio. You also had a huge divergent day last week between junk and equities. Add all this to January being junk’s best month historically so I had no choice. This could all be nothing more than an oversold bounce in stocks and junk so I would be wary. But believe it or not, if you search you will find some junk funds are just a hair away from their historic highs.