DoubleLine’s Jeff Gundlach appeared on CNBC earlier, and among other things, the muni market was discussed. It appears that the fund manager whom many consider to be roughly in the same ballpark as Howard Marks when it comes to fixed income investing is very much in Meredith Whitney’s camp when it comes to his outlook on muni market prospects.
Asked by Faber if he believes that munis are ultimately going the way subprime securities did, Gundlach responds “If by that you mean lower, the answer is yes. If you mean crashing, I am agnostic on that.” And for all those who love taking out their actuarial tables and their historical default data to refute what is simply common sense, Gundlach has a few words as well: “I don’t think you need to know what the default rates are going to be, or need to know how low low is, munis are going to go down.
There are going to be other shoes to drop. There might be so many it looks like Imelda Marcos’ closet when all the shoes drop because all the states have to deal with this stuff.… Between here and the endgame lies the valley and the valley is full of fear. And I think the muni market is going to go down by at least 15 to 20%. At least.”
As for Kaminsky relentless advocacy of munis, this time coming out with the always disingenuous “hold to maturity” defense, Gundlach simply made a mockery of that whole spiel: “You know what the definition of an investor? It is a trader who is underwater. People say they hold to maturity until they get scared and sell. It gets scary when the prices start to drop. The fear factor here is going to be palpable.”