Tags: Gundlach | Munis | Real Estate | Stocks | Tank

Gundlach: Munis, Real Estate and Stocks Are Going to Tank

Tuesday, 22 Feb 2011 08:22 AM

Municipal bonds are going to tank, home prices set to fall anew and equity markets are teetering on a deep abyss, says bond investor Jeffrey Gundlach, founder of DoubleLine Capital.

"Though I rarely go public with specifics on stocks, I think the Standard & Poor's 500, which is now over 1,300, will hit 500 in the next couple of years," Gundlach tells Barron's.

"I usually couch my belief by saying merely that 2011 will be a tough year for equities."

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Jeffrey Gundlach
The municipal bond market is due for a hit since many investors are individuals who buy mainly for tax advantages, with little knowledge of the fundamentals of the instruments they own, which means they are prone to panic.

"I don't know whether the market will suffer $10 billion or $30 billion in defaults, but the actual amount doesn't matter," Gundlach says.

"There will be a panic at the margin, and muni bonds from the highest-rated on down will plummet, in part because other sorts of investors tend not to step in."

Housing prices, meanwhile, are due to drop another 10 percent to 15 percent, although talk of hefty inflation around the corner is unlikely, as expectations of rising consumer prices push up yields on 10-year bonds.

Yield of between 4 percent and 4.5 percent from a current 3.5 percent would cause economic growth to short-circuit, which is not conducive for inflation.

Municipal bonds have taken a beating especially since star analyst Meredith Whitney told 60 Minutes recently that widespread defaults were likely in the $2.7 trillion market.

Others agree the market needs watching.

"There may be additional defaults in the municipal sector. There certainly is going to be distress in the municipal sector," Raymond McDaniel, chairman and chief executive of Moody's, tells the Financial Times.

"But we differentiate that from a broad-based systemic problem."

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Municipal bonds are going to tank, home prices set to fall anew and equity markets are teetering on a deep abyss, says bond investor Jeffrey Gundlach, founder of DoubleLine Capital. Though I rarely go public with specifics on stocks, I think the Standard Poor's 500,...
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2011-22-22
Tuesday, 22 Feb 2011 08:22 AM
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