- Jeffrey Gundlach — the CEO and chief investment officer of DoubleLine Capital — shares an investment setup happening right now that’s historically rewarded patient investors.
- Prior to this instance, it’s occurred just two other times in the last century.
- Gundlach says the US dollar “should weaken” in the near future — a core expectation that helps dictate some of his other forecasts.
- Unrelated to the his US dollar forecast, Gundlach says bitcoin will climb as high as $15,000 in 2020. The prediction comes on the heels of his spot-on bitcoin forecast for 2019.
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It was hard to lose money in 2019.
Still, many experts say the likelihood that investors will reap similarly broad-based returns across asset classes in 2020 is unlikely.
“It seems like it’s just about time for the dollar to weaken,” he said on a recent webcast.
Gundlach is adamant that the US dollar will depreciate for three main reasons: foreigners starting to divest from the US, the Federal Reserve‘s continued insistence upon printing money, and a blown-out budget deficit.
Below is a chart depicting the relationship between the US dollar and current account and budget balance of the US. Gundlach says that historically speaking, the dollar — with a lag — is highly correlated to the movement in the twin deficits (brown line). This leads him to believe that a weaker US dollar (black line) is on the horizon.
With the prospects of a weaker US dollar front and center in his forecast, Gundlach sees an enticing buying opportunity brewing in one asset class in particular: commodities.
Historically speaking, when the US dollar weakens, commodities prices rise.
Gundlach provided the following chart, which depicts the performance of commodities (measured by Goldman Sachs and Goehring & Rozencwajg) over the Dow Jones Ratio, in order to bolster his call.
Bloomberg, DoubleLine, Goehring & Rozencwajg, Goldman Sachs
In the last 100 years, he notes that this relationship has moved to 0.1 only three times: 1929, in the 1960’s, and today. The finding implies that right now, on a valuation basis, commodities look wildly undervalued.
“I think with the weaker dollar, the valuation in the US, the Bernie Sanders digestion that has to happen in terms of market risk, I think that this black line is going to head up during 2020,” he said. “This is a really huge buy signal — on a valuation basis — for commodities.”
Still, Gundlach’s call is primarily catered towards an investor with a longer-term time horizon — and he’s quick to note that this trade may take a while to materialize.
“I don’t think you want to invest solely on valuation using this chart because you can notice how long it can take to work,” he said. “Back to late 50’s into the early 70’s, this went nowhere. You didn’t lose any money in commodities, but you didn’t do any better than the Dow Jones.”
He continued: “Maybe it will be a 2021 event. But certainly, valuation is on your side.”
An investor looking to get broad exposure to commodities could purchase Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC).
In addition to Gundlach’s bullishness on commodities, he’s also in favor of non-US equity markets. Once again, his recommendation is based on an expectation that the US dollar “should weaken.” Of particular interest to him is the iShares MSCI Emerging Markets ETF (EEM).
“You could just buy EEM again,” he said. “I think you’ll have another good year there. I think EEM will be better than the developed world, and certainly better than the United States if the dollar is falling.”
Lastly, in an unrelated call to the weaker US dollar forecast, Gundlach shared his thoughts on bitcoin. In 2019, he recommended that investors purchase the cryptocurrency — and his call was spot-on. Bitcoin rose 95%.
“I think bitcoin’s going to go higher in the near-term,” he said. “I think it could go as high as $15,000 in 2020.”