Sense on Cents

We have not heard much lately from the former high profile money maven, Jeff Gundlach. You may recall that Gundlach departed the LA-based Trust Company of the West late last year under very questionable circumstances, leading to an ugly lawsuit. I highlighted as much this past January in writing, “TCW vs Gundlach, et al: Getting Ugly Early.”

What has Gundlach been up to lately? The Wall Street Journal brings us up to date on the once high-flying, but currently humbled, money manager in writing, Gundlach Gets Back in the (Smaller) Game:

Jeffrey Gundlach, the bond-fund manager whose departure from TCW Group in December made headlines, still sees himself as a player in the industry.

But that may be a bit harder now. His new company, DoubleLine Capital, manages $500 million in two mutual funds along with some institutional money, compared with the nearly $70 billion that Mr. Gundlach and his team oversaw at TCW, a unit of French bank Société Générale.

“In one way, it’s nice to run less money,” said Mr. Gundlach, chief executive of the Los Angeles asset-management firm. But in another way, he said, “I like to think of myself as a big-time bond-fund manager.”

For now, Mr. Gundlach is turning his attention to managing DoubleLine’s investment lineup and building the firm’s assets.

While Gundlach’s departure and the resulting lawsuit make for interesting reading, the fact remains Gundlach has few equals in terms of his investment skills. What does he currently think of the markets and our economy?

He said in an interview that the bear still has a hold on the stock market, the housing crisis isn’t over, and he expects further deflation. Mr. Gundlach also said that if Washington is going to look at financial institutions that are too big to fail, it ought to be concerned about the asset-management industry.

Why is Gundlach concerned about the seemingly staid asset management industry?

Mr. Gundlach said that as Washington considers which institutions are too big to fail, it ought to be concerned about the asset-management industry because some managers have trillions of dollars of assets under management, and their reliance on over-the-counter derivatives leaves investors vulnerable to counterparty defaults.

Mr. Gundlach sees inflation as an eventual concern, but he said deflation is a more immediate threat because of government tax increases, the end of stimulus and the weakness that remains in the housing market.

Lots of sense on cents from Mr. Gundlach. We would be wise to take his considerations to heart as we look to most effectively navigate the economic landscape.

LD

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