Jeff Gundlach Explains Why It's Time To Sell US Stocks, Buy Emerging Markets

One year ago at the Ira Sohn investor conference, DoubleLine CEO Jeffrey Gundlach caused a stir when he predicted that Donald Trump would win the presidential election, something virtually no other asset manager or pundit agreed with. Gundlach was right.

This year, Gundlach's Sohn presentation was more whimsical and eclectic even if he focused on more mundane financial topics, touching on the recent scramble into passive investing via ETFs and indexes, then turning to markets and observing that US equity valuations have become stretched on numerous metrics, one of which is the value of the S&P 500 relative to US GDP which has risen to historic highs that have even exceeded the dot-com bubble...

... while cyclically adjusted valuations as per the Shiller CAPE are also in nosebleed territory, and that while U.S. stocks could continue to grind higher, it's time to look abroad.

He managed to interweave his financial narrative amid a discussion of Friedrich Nietzsche as well as early 20th century art, focusing on a painting by Max Beckmann called "Night" which he dubbed alternatively as "a portrait of US long-only equity managers" while contrasting them to passive investing which has been on a tremendous run in recent years.

"The Night," Max Beckmann

Going back to the distinction between active and passive investing, Gundlach said passive investing, which he called a "bubble" is ultimately a "myth" without rigid rules, and that managers ultimately decide which stocks are included in indexes. He encouraged investors to take index funds and "throw them out the window" according to CNBC.

In a subsequent interview with CNBC (see below), Gundlach elaborated that one of the reasons for the US market's dramatic overvaluation is the indescriminate inflows going into all stocks via passive investing vehicles, which has pushed every sector of the market above its fair value.

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