Retail investors are also partially to blame for overvaluation in corporate bonds, he said, adding that retail investing booms should be seen as contrarian indicators.
Fixed-income investors may still find opportunities in loans, CLOs and mortgages, said Gundlach—particularly in agency mortgages, where risk may currently be mispriced in comparison to corporate bonds.
“Commercial mortgages are viewed to be dangerous, especially in certain industries,” he added. “What does that mean? Opportunity. ... You want to invest in things that are not protected by the Fed. They’re at a value.”
Gold may be the only “safe” asset in 2021, said Gundlach, who also recommended industrial commodities for those able to access them.
Gundlach warned against owning U.S. stocks.
“If you own U.S. stocks, you’re playing a momentum game that is dangerous broadly,” he said, noting that most of the returns of the S&P 500 since the coronavirus pandemic took hold have been generated by six technology stocks. “If you want to own U.S. stocks, you’re betting on more big tech momentum, which means you should be buying big tech if you’re bullish on U.S. stocks.”
U.S. stocks are overvalued due in part to a massive entrance of retail investors into the market over the last seven months, said Gundlach, and the only way to justify buying them is if one has an inflationary outlook, which he said makes little sense. Earnings for 2020 have thus far come in line with their 2017 levels, but the market is “substantially” higher, he said.
Gundlach says that it’s unlikely earnings will be sufficient to justify high prices for U.S. stocks, which is why he argues investors should look to the rest of the world, especially emerging markets, for the equity portions of their portfolios.
Adding to the likelihood that international stocks will outperform U.S. stocks is Gundlach’s outlook for the U.S. dollar. As budget and trade deficits rise, the long-term value of the U.S. dollar should decline, he said.
Gundlach called the decline of the U.S. dollar in coming years his “highest conviction idea.”
“The guess is that the U.S. is going to be weaker than the rest of the world ex-U.S.for 2020 and 2021,” he said.
Currently, an average forecast for 2020 U.S. GDP is for negative 4% growth, compared to an average forecast of global GDP ex-U.S. at negative 3.9%. For 2021, U.S. GDP is expected to grow by 3.7%, compared to 5.2% for global GDP excluding the U.S., said Gundlach.
“Twenty-four percent of small businesses are closed due to Covid,” he said. “Is that permanent? No, but I think that number is going to accelerate again.”
Fiscal stimulus was handled “hamfistedly,” explained Gundlach, leaving most small business owners “hanging by their fingernails to the side of the cliff” while larger companies and larger borrowers have benefitted.
Gundlach also said that, after being bullish on bitcoin earlier in the year, today he feels that the cryptocurrency is nothing more than a speculation tool that might not survive.
He also stated on Tuesday his conviction that President Donald Trump would win re-election, and that the Senate would remain in Republican hands. In contrast, AGF Investments Chief U.S. Policy Strategist Greg Valliere predicted a Joe Biden win during the conference.