US Markets

No Exit in Sight from Fed's Bond Buying: Gundlach


Any exit from the Federal Reserve's extraordinary monetary stimulus is still far off, Jeffrey Gundlach, noted bond investor and CEO of DoubleLine Capital told CNBC’s “Squawk on the Street” on Wednesday.

Jeffrey Gundlach, founder and chief executive officer of Doubleline Capital LP.
Scott Eelis | Bloomberg | Getty Images

“I think it will be more likely that the Federal Reserve buys all the Treasury bonds that exist than starts selling them,” he said.

The man some have dubbed as "the new bond king"  —challenging the mantle anointed on Pimco's bond guru Bill Gross — added: "I have no concept of what an exit strategy would look like.” (Read more: Fed's 'QE Infinity': Four Things That Could Go Wrong)

Gundlach cautioned about what he sees as the futility of additional monetary stimulus. “Quantitative easing is not going to be effective, and it’s not very big,” Gundlach said, adding that it won’t bring interest rates down.

He called the market's behavior in response to more stimulus “grossly manipulated.”

Gundlach: The 'New Bond King'

Investors shouldn’t be focused on what the Fed may do at some future date with respect to quantitative easing, Gundlach said. Instead, they should be looking nearer-term.

“In investments, it’s not about trying to figure out what some distant event is going to be, it’s about dealing with the next move on the chessboard,” Gundlach said. “The next move is not the Fed exiting, it’s the Fed continuing [monetary stimulus].”

Gundlach said the traditional approaches to investing no longer work in this environment. He said investors should avoid Treasurys and move into international bonds. He also favors bank debt funds.

He is negative on stocks in the near term. “I don’t like risk assets at levels where they are today,” he said. But longer-term, current Fed policy means investors should focus on real assets and real businesses that can preserve purchasing power.

Gundlach: The 'New Bond King', Part 2

“We’re not going to have a lost decade in equities, but I wouldn’t buy them today,” he said. (Read More: Stocks Will Live, but ‘Worship’ of Them Is Dead: Gross.)

He also weighed in on the public's "obsession" with all-things Apple, whose stock is surging to record highs in the wake of the release of the fifth version of its iPhone. (Read more:)

“I think the obsession with Apple is a truly remarkable social phenomenon,” Gundlach said. That, he says, suggests the stock is “overbelieved” and “overbought.”

Investors looking at equities should buy the safest of the dividend payers. That means avoiding dividend payers in the technology sector and buy consumer products stocks like Campbell Soup and Kraft Foods.

He also would avoid banks like Bank of America and Citigroup.

The bond investor called those companies reasonably valued, adding, “the challenge is about how they’re going to grow and make money."

With the euro zone debt crisis still raging, Gundlach alsosaidthere’s still too much risk surrounding Europe. Authorities have instituted a “circular financing scheme that needs to have one fundamental question answered ‘Will Germany pay the debts of the periphery or not?’”

“Many of us suspect the answer will ultimately be ‘no,’” Gundlach said. If that’s the case, the banking system is vulnerable to a significant shock, he warned.