In a CNBC interview yesterday with Gary Kaminsky, Jeff Gundlach gave his 6 market predictions for 2013. Here they are:
Prediction 1: Total Return for the 10 Year Treasury in 2013 – 3%
We are in a range bound market in bonds. Because the 10 year treasury yield is at the high end of the range, and the Fed is still very active in the market, he says its not a bad time to put some money to work in the bond market.
10 Year Treasury Yield Chart
I was actually a bit surprised that Kaminsky didn’t have a followup question for Gundlach on this one. The last time they spoke was in September of 2012, and Gundlach said he would not be surprised to see the 10 year treasury 100 basis points higher by the end of the year. (Read more on that here.)
Prediction 2: Total Return in High Yield Bonds for 2013 – 6%
Gundlach does not think there is a bond bubble. He is however concerned about a bubble building in credit risk. He is predicting that with rates so low, funds are going to start leveraging up their portfolios to try and amplify those small yields into something meaningful.
While this will be a bad thing when interest rates eventually rise, in the near term he sees this as a positive for the bond market. As more and more managers begin to use leverage it will amplify their buying power, sending bond prices higher and their yields even lower. This should be particularly true in corporate bonds, junk bonds, and emerging market bonds.
We feel that junk bonds are still a buy as well. Ready why here.
Prediction 3: Mortgage Backed Securities Total Return for 2013 – 6%
Gundlach did not give any detail on this prediction, however it is likely the same rationale as outlined in the high yield bond prediction above.
Prediction 4: Japan’s Nikkei Total Return for 2013 – 20%
As we cover in our article Gundlach: The Japanese are Out of Options, Buy Japanese Stocks and Short JPY, one of Gundlach’s “highest conviction” ideas of 2012 was that the Japanese stock market was about to head a lot higher. Since he made that prediction just a few weeks ago, the market is up over 20%. While Gundlach feels that the trade may be due for a pullback in the short term, he still feels that the Nikkie could be up 20% plus in 2013.
Prediction 5: Apple to hit $425
Perhaps the call that Gundlach is most famous for in 2012, was his prediction that Apple stock would hit $425 a share. While that call may not seem that prescient now that the stock has sold off, gundlach made the call when Apple was making new all time highs, and before it topped out at around $700 a share. Gundlach says he is still confident that Apple shares will hit $425 from their current level of around $550.
Prediction 6: S&P Total Return for 2013 – 5%
In several interviews in the 4th quarter of 2012, Gundlach said he was predicting a financial catastrophe sometime in the next few years. We covered this in our article Gundlach: Three Ways to Profit from the Coming Financial Crisis. While Gundlach did not give any details on his 5% S&P return in 2013 prediction, it seems that he thinks the true crisis isn’t going to hit until after 2013.
For more from Jeff Gundlach see our page dedicated to his presentations and articles here at Learn Bonds.
For 5 investment recommendations from another bond guru Bill Gross go here.
You can see the full interview here: