Tags: Gundlach | bonds | Japan | debt

DoubleLine’s Gundlach: Bond Market Is Hovering Over a Crater

By John Morgan   |   Thursday, 18 Apr 2013 07:50 AM

Bond fund manager Jeffrey Gundlach predicts the developed world has passed the point of no return with its larding on of mountains of debt, and will not be able to recover due to the sheer magnitude of its unsustainable spending.

In the past few years, Gundlach has made correct contrarian calls on the fall from grace of Apple stock, the rise of natural gas and going long the Japanese stock market while shorting the yen, according to Investment News.

Now Gundlach, CEO and founder of investment management firm DoubleLine, says the bond market is on precarious footing.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

“The private economy hit the wall in 2007, and the banking system would’ve collapsed in 2008 if the government hadn’t stepped in,” he told Investment News.

“Now we continue to have debt increasing. It’s simply at the point where you can’t pay it back.”

The continued government bond purchases by the Federal Reserve, as well as similar buying programs by other central banks, is creating an artificial environment of low rates, according to Gundlach.

“There's an idea that there is a put on the stock market [because of the Fed's bond-purchasing programs]. You're saying that when stocks go down or the economy weakens, the Fed will step in,” Gundlach explained.

“Actually, the put is on the bond market,” he said.

He noted the U.S. government now has more than $120 trillion in unfunded liabilities, including Social Security, Medicare and other ailing entitlement programs.

“The idea that you will pay that back with today’s valued currency stretches the imagination. It will take a crisis to get people to notice,” he stated.

“What’ll it be? Nobody knows, since people are still ignorant of the math of this.”

The Wall Street Journal reported a rout in commodities helped push a flight into safe-harbor Treasury bonds, pushing benchmark bond yields to near their lowest level in four months this week.

Earlier investor optimism is now giving way to caution, which has helped Treasury bond bulls reclaim lost ground given up previously to bears, the Journal said.

Potential support for bond bulls could come from Japan, The Journal predicted.

The Bank of Japan intensified its bond-buying program on April 4, raising speculation Japanese investors would be pushed out of the Japanese government bond market in searching for higher yields in overseas assets, such as U.S. Treasurys.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

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Bond fund manager Jeffrey Gundlach predicts the developed world has passed the point of no return with its larding on of mountains of debt, and will not be able to recover due to the sheer magnitude of its unsustainable spending.
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