Greece’s likely exit from the euro currency group “opens Pandora’s box” by setting a precedent that makes membership porous, according to Jeffrey Gundlach, co-founder of DoubleLine Capital.
Greece will exit the euro currency area in “slow motion,” which should be positive in the short run for the currency since it removes an economic drag, Gundlach said on a wide-ranging webcast on Tuesday from Los Angeles. But that would raise questions about whether other members of the bloc may eventually leave, he said. “There’s never one cockroach.”
Gundlach oversees the $46.7 billion DoubleLine Total Return Bond Fund, which has returned 1.5 percent this year, beating 78 percent of peers. Over five years, it’s returned 6.9 percent, outpacing 99 percent of rivals. He also manages the five-year- old DoubleLine Core Fixed Income Fund, which has returned 1.5 percent this year, beating 96 percent of comparable funds, according to data compiled by Bloomberg. Over the past five years, the $4.4 billion fund has beaten 97 percent of peers.
European leaders talked openly about a Greek exit from the euro ahead of a weekend summit on the country’s economic future, breaking dramatically with years of denial about the possibility. The European union gave Greece’s anti-austerity government until Sunday to make new economic reform proposals that could earn another aid package and save it from financial ruin.
Otherwise, they say, they’ll take the unprecedented step of propelling the country out of the euro, splintering a currency that was meant to be irreversible and throwing more than a half- century of economic and political integration into reverse.
China’s Market
Gundlach also said it was unlikely that Chinese stocks would resume their strong advance any time soon after the market plunged more than 30 percent in the past month.
He put the chances of the U.S. Federal Reserve increasing interest rates in September at below 25 percent.
DoubleLine’s Core fund doesn’t own any securities from Puerto Rico, even though Gundlach himself likes the debt, he said. Other funds within the firm do own securities from the commonwealth. Puerto Rico and its agencies have $72 billion of debt outstanding.
Officials from Puerto Rico are set to meet July 13 with creditors in New York to discuss a restructuring plan, as the junk-rated island’s economy has struggled to grow since 2006.