Jeffrey Gundlach’s trading tips have raked in some decent profits. Jeffrey Gundlach, billionaire bond investor makes no bones about the macroeconomic landscape and better still how he is playing it.
Last month Jeffrey Gundlach spoke at the Sohn Investment Conference in New York. It was a closely watched event because Jeffrey Gundlach’s trading tips were plentiful.
Jeffrey Gundlach, DoubleLine Capital LP chief executive officer, recommended shorting Facebook and going long in an exchange-traded fund (ETF) that tracks oil-and-gas explorers and producers who could benefit from rising inflation.
But Facebook shares have been making a recovery in June with its stock price hovering near 180 at the time of writing this peace. Facebook fell to a low of 130 and continued to bounce around the bottom during the first half of 2019 following reports in the Times and London’s Observer newspaper that Cambridge Analytica, a political consultancy that worked on U.S. President Donald Trump’s campaign, gained inappropriate access to data on tens of millions of the social media company’s users.
Jeffrey Gundlach said the worst is likely not over for Facebook, not unprecedented for equity bubbles being ended by regulation. Facebook’s strengths are being redefined as weaknesses, he said.
“We hear the good things about Facebook, which is 2.2 billion users” said Gundlach, known as Wall Street’s “Bond King.”
“We hear the good things about Facebook, which is 2.2 billion users”
“I hear 2.2 billion compliance breaches” said Jeffrey Gundlach.
But Jeffrey Gundlach’s trading tips regarding shorting the company has not been one of his winning trades. Facebook’s shares wobbled in late May but have since been making a come back with the stock up nearly 10% since June lows.
Jeffrey Gundlach’s trading tips to buy into SPDR S&P Oil & Gas Exploration & Production ETF has also stumbled with the index hovering around 25 which is well below its 52 week high of 45
Jeffrey Gundlach argued inflation is perking up and buying into energy assets would be one way of sheltering capital against rising costs. But fears that the world’s largest economy would be dragged down by a global economic slump has dampened investor appetite for energy assets.
However, if we see stagflation (falling economic activity together with rising prices) then Jeffrey Gundlach’s trading tips which entails buying into SPDR S&P Oil & Gas Exploration & Production ETF could turn profitable.
““Inflation is perking up and will likely continue to rise even if the U.S. economy is headed for a pullback” – Jeffrey Gundlach
One of Jeffrey Gundlach trading tips with the best returns thus far was to buy interest-rate volatility on long-maturity U.S. Treasuries via a put-call straddle on TLT
So let’s break this one down into bite-size logic.
Jeffrey Gundlach suggested a straddle-buying strategy which can help investors/traders survive, maybe even thrive during bouts of market volatility.
A straddle-buying strategy is similar to a rider straddling a horse. The rider sits comfortably on the horse’s back with his leg dangling down on the opposite side of the horse. If you replace the horse with financial security (such as US Treasuries) and make the rider a trader, the rider’s legs financial transactions (options) and you get some similarities.
Straddle-buying means, in a nutshell, two transactions that share the same security, with positions that offset one another. One holds long risk, the other short. So Straddle-buying is when a trader holds two options, a put and a call that offset each other. Ultimately, the success of a straddle-buying depends on the trader’s ability to spot warning signs of volatility.
The financial asset that Jeffrey Gundlach recommended to straddle is TLT.
TLTs is a 20-Year Treasury Bond Exchange Traded Fund which tracks a market-weighted index of debt issued by the US Treasury with remaining maturities of 20 years or more.
“All one needs is a 50 basis-point change in the long-bond in the next year to make money on this trade” – Jeffrey Gundlach
Why has buying US Treasuries via a put-call straddle on TLT been one of Jeffrey Gundlach best trading tips with a 20% return to date?
Jeffrey Gundlach reasoning is that interest rates cannot maintain the low volatility they’ve experienced in the past eight years for an extended period of time.
Jeffrey Gundlach argues that “all one needs is a 50 basis-point change in the long-bond in the next year to make money on this trade”.
“Six months from now, if volatility has doubled, investors would have a 40 percent gain even if interest rates haven’t moved”, he said. “Just the volatility doubling sometime in the next year is very likely to make you money” said Jeffrey Gundlach.
A put-call straddle on TLT has been one Jeffrey Gundlach trading tips to make those investors who shadow traded it profits in excess of 20% this month alone.
But where next for this straddle trade?
“If you put it on, taking it off now makes sense” as it is an example of “rare instant gratification” said Jeffrey Gundlach.
Indeed, bond investors have seen some recent volatility in the yield curve which plunged in the short end as the market is now pricing in about three rate cuts by the end of 2019.
So Jeffrey Gundlach trading tips, particularly the put-call straddle on TLT could still have legs.