NEW YORK (Reuters) - Jeffrey Gundlach, chief executive officer at DoubleLine Capital, said on Tuesday the recent rally in risk assets is nearing an end as those assets will struggle in sympathy with oil.
“Oil, like I said, had an easy time rallying from 28 to 38. Now the hard work begins,” Gundlach said. “Oil is the key to everything.”
Gundlach told Reuters last week that the firm is now considering closing out some of its long positions in the stocks they had purchased in February.
Gundlach said unless oil rallies another $10 a barrel or more, “a lot of companies are going to go under, which will kill the banking system.”
He added that “the rally off the 200 low (in copper) has not been that impressive, and looks to possibly be over.”
On Tuesday, benchmark Brent crude hit a 2016 high of $41.48 a barrel, then eased to settle at $39.65, down 2.9 percent on the day. Brent was still up 46 percent from a 12-year low of $27.10 struck on Jan. 20. [O/R]
Gundlach said gold prices are going to continue to rise and hit $1400 an ounce. He said gold is a good holding for those who have lost faith in central bank policies. “Gold is the anti-banking system. Negative rates are bad for the banking system,” Gundlach said.
Gundlach said in a webcast later Tuesday that the Standard & Poor’s 500 Index, which he characterized as being in a bear-market rally that is close to being over, has 2 percent upside but 20 percent downside.
Gundlach also said emerging market equities are also in a bear-market rally and that it would be a “big losing proposition” to be invested in the overall equity markets. Gundlach added that the firm has been purchasing non-U.S. currency bonds which have performed well. There’s “no progress” on the U.S. dollar short-term, Gundlach said, noting he is long-term bullish on the greenback.
Last year, Gundlach correctly predicted that oil prices would plunge, junk bonds would live up to their name and China’s slowing economy would pressure emerging markets. In 2014, Gundlach correctly also forecast U.S. Treasury yields would fall, not rise as many others had expected.
Reporting by Jennifer Ablan; editing by Chris Reese, David Gregorio and Bernard Orr