Emerging Markets
Richard Pildes, a constitutional law professor at the New York University School of Law, says that line of thinking has been widely discredited. “The constitutionality of Congress creating independent agencies like the Fed has been long settled,” he says.
Gundlach’s outlook isn’t uniformly bleak. He sees some opportunities in emerging-markets equities, particularly in China, where the Shanghai Stock Exchange Composite Index fell 3.5 percent in the first 10 months of 2012.
Chinese stocks make up the majority of international equity holdings in the DoubleLine Multi-Asset Growth Fund, says Jeffrey Sherman, a portfolio manager for the fund. It increased its exposure to international equities to 6.7 percent as of Oct. 31 from 4.9 percent a month earlier.
Beyond China, Gundlach says, the demographics in some emerging markets will support sustained growth. While developed nations will have fewer than three workers for every retiree by 2025, Brazil, India and Mexico will have almost six to seven workers, according to the U.S. Census Bureau.
Expensive Equities
“Retirees take resources from a society, and workers produce resources,” he says.
In line with Gundlach’s gloomy outlook for America, the Multi-Asset fund recently dumped some of its U.S. equities. Sherman says the stocks are too expensive and U.S. companies don’t have much potential for growth. But the fund has added to its holdings of gold-mining companies and natural gas producers in 2012 because these stocks are cheap, he says.
Gundlach has made some prescient calls on stocks. He recommended in April that investors short Apple Inc. and hedge that bet by going long on natural gas. He said Apple was priced too high at $606 after the stock had risen more than sevenfold from January 2009 to April 2012. After that call, Apple stock fell about 4.7 percent through Nov. 29.
Even after the September release of the iPhone 5, which shattered Apple’s pre-sale order records, the company will struggle to reach its earnings potential without an innovator like Steve Jobs at the helm, he says.