Jeffrey Gundlach has some advice for billionaire Elon Musk. Get out of the car business.
The bond manager, who says he’d rather buy Tesla Motors Inc. (TSLA:US) shares instead of Twitter Inc., sees a 30 percent chance that the electric-vehicle maker will give speculative investors a “killer” return. Gundlach said he’s been trying to get together with Musk, a fellow Southern California resident, to persuade him to cut a deal with competitors in which Tesla would stop making cars and instead supply automakers’ batteries.
Tesla “could be wildly transformational the way electricity and electromagnets were,” the 54-year-old founder of DoubleLine Capital LP said yesterday in an interview with Matthew Winkler, editor-in-chief of Bloomberg News, at a forum at Bloomberg LP’s headquarters in New York. “What does Twitter (TWTR:US) create? It creates information flow but it’s not really creating anything. If you’re going to buy a high-flier, I would rather own Tesla.”
Musk, 42, Tesla’s chief executive officer, is the 121st richest person in the world with an estimated net worth of $9.8 billion, according to the Bloomberg Billionaires Index. He plans to add a mass-market electric car in about three years, powered by battery packs. Shares of the Palo Alto, California-based company have surged (TSLA:US) 38 percent this year amid a global push to sell its electric cars. The shares rose 0.7 percent to $208.81 at 9:46 a.m. in New York.
Simon Sproule, a spokesman for Tesla, declined to comment.
Twitter shares (TWTR:US) dropped to their lowest price yesterday since debuting in November, slumping 18 percent to $31.85, after the microblogging service lifted restrictions on sales of shares by insiders and early investors. The stock has declined 50 percent this year after the company reported slowing user growth, raising concern that it may not be able to add more mainstream members. The shares fell 0.2 percent to $31.80.
Gundlach, known for specializing in mortgage-backed securities, has beaten (DBLTX:US) 97 percent of fund peers over the past three years, according to data compiled by Bloomberg. The manager, who previously posted top returns at TCW Group Inc., was early to spot trouble in the U.S. property market and correctly predicted the subprime mortgage crisis in 2007. He told investors in 2012 to bet against Apple Inc. shares (AAPL:US) before they started falling.
In his prior role as chief investment officer at TCW, Gundlach managed its Total Return Bond Fund, which until his departure in December 2009 had beaten Bill Gross’s Pimco Total Return Fund (PTTRX:US) over five, 10 and 15 years.
Pacific Investment Management Co., whose biggest mutual fund has trailed peers over the past year, is suffering from what Gundlach called the natural “double-edged sword” of success.
“Once you have monumental market share, you’re vulnerable,” he said in response to a question about the world’s biggest bond manager, based in Newport Beach, California. “Above a certain threshold, managing more money doesn’t increase your returns. It doesn’t. It makes it more difficult to move your money around.”
He estimated that threshold in fixed income to be in the “few hundred billion dollars.” Pimco, a unit of the Munich-based insurer Allianz SE, managed $1.94 trillion in assets as of March 31.
The Federal Reserve, which has cut its unprecedented bond buying program to $45 billion a month from $85 billion as it seeks to ease stimulus measures that have supported markets for more than four years, may be stuck in the program known as quantitative easing as the economy won’t grow fast enough, he said.
“I think we’ll be doing it in the decade of the 2020s, because the financing needs are so ugly” as aging populations and declining workforces spur foreign central banks to curtail their purchases of U.S. government debt, Gundlach said. “The bar for them to reverse course is very high.”
Gundlach also sees too much enthusiasm for the U.S. real estate market, saying potential homebuyers younger than 35 aren’t accruing wealth fast enough and foreign buyers seeking tangible assets flooded the market with cash deals.
Demographic pressure will also weigh on China’s expansion, according to Gundlach, with years of a policy restricting families to one child squelching new job market entrants annually to zero from as many as 300 million. That may force China to sell its Treasury holdings, he said. At the same time, the nation’s growth has been slowing.
“China is probably due for a significant negative number in their GDP after all that growth,” Gundlach said, drawing a parallel between the country’s expansion and the “hopeful optimism on housing.”
The world’s second-biggest economy grew 7.4 percent last quarter from a year earlier, amid mounting risks from shadow banking and local-government debt. China may only expand 6 percent this year, Gundlach said.
DoubleLine Total Return Bond fund (TGLMX:US) has advanced 5.9 percent annually over the past three years, and beaten 90 percent of rivals in 2014 by climbing 3.5 percent, according to data compiled by Bloomberg.
Gundlach started Los Angeles-based DoubleLine Capital after being ousted as chief investment officer of TCW in December 2009 after a dispute. Since his first mutual fund was opened in April 2010, his firm has attracted almost $50 billion in assets, including $32 billion in the Total Return fund.
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