Trump may triumph but the serious logic boils down to fund flows and a gut feeling. But any argument that revolves around “charisma” makes truly big money nervous. Handle with care.
We’ve been tracking Jeff Gundlach at DoubleLine in order to learn from his media strategy. After all, you don’t build a $135 billion fund complex out of nothing but vanilla bonds.
However, notoriety is always a balancing act. You’re always free to make rhetorical leaps, but if you don’t footnote every logical step toward your conclusions, the institutional investors you want to reach will back away.
Even if you’re psychic, you don’t want them to admire your wild talent for predicting the future. What they want is to make sure you have a process in place to predict the future consistently and reliably.
Otherwise, it’s just a gut feeling built on intangibles. That’s the position Gundlach has backed into with his latest prediction on the November election.
Biden boring, Harris “too” charismatic
We’d all love to know in advance who will be in the White House next year. We’ll be polling you later in the season.
The winner will have a huge impact on the way money moves through the federal system and the economy. Questions of tax policy and stimulus are extremely delicate in what still feels like a post-COVID recession.
If the economic environment recovers before November, the stakes are lower and the map favors the incumbent.
And in the bond market, these questions are fundamental. People like Gundlach make big bets on where fiscal policy and the dollar are taking the Treasury. Picking the right future will pay off big. Picking the wrong one will really hurt.
Right now, Gundlach is making headlines for betting against a Biden presidency. That’s his right and his privilege. He saw Trump coming four years ago.
Now he suspects polls overestimate Biden’s support and newly anointed running mate Kamala Harris is “a little too charismatic” to add much to the Democrats’ ticket.
Challenging the data reduces the overall reliability of the information we receive every day. Maybe the polls are broken and all the news is fake. It happens.
But in that scenario, people who decide where to deploy institutional money get nervous. They like reliability. They crave the biggest data pictures they can get.
Their preferred solution to any problem is more data and, when it comes to politics, more polls to compare against each other and ultimately model true crowd wisdom. If a poll is off, they’ll demand to know where it falls down.
And if all the polls are broken, you need to give them a compelling replacement to make them comfortable again. That’s where the charisma quip becomes a factor.
When I worked with a gigantic hedge fund family office, the principals were extremely smart people and they were highly politically engaged.
They ran all the numbers in 2004 and decided that John Kerry should win because he was the sober, prudent, establishment choice . . . the opposite of charismatic, especially when set against George W. Bush’s cowboy style.
They lost. In 2008, they refreshed the models to favor disruptive candidates who could attract media buzz and appeal to voters as celebrities. Sarah Palin was on the ticket against a couple of wonks, so their choice seemed obvious.
They lost again. After that, I lost track of their political framework. Two failures in a row proved something was wrong with the model.
Now I have no idea whether disruption in itself is enough to swing an election. If it does, we can all agree Trump can rock a four-year news cycle like nobody can. Maybe he’s got too much “charisma” for some people to handle.
But in that scenario, Gundlach needs to advance the model to distinguish between what Harris brings to the ticket and what Trump dishes out every day. Otherwise, it’s just another argument that a tired nation wants John Kerry and a jaded nation wants Sarah Palin.
Been there. Done that. Gundlach gets his search engine hits and we all find out in November whether he bet right or wrong.
From underdog to bond king
Maybe he can open up his model and let us test the moving parts ourselves. Otherwise, taking him seriously amounts to a leap of faith.
As long as he bets right, we love him. When he misses, it’s a shock. His career has revolved around his ability to see shocks coming and get his funds ahead of changes nobody else sees coming.
He’s really a change agent. That was the basis of his 2016 Trump call. It seems to be driving his 2020 thoughts as well.
Four years ago, he read the room and decided the pundits were too complacent. He saw the system wasn’t working. The economy needed a fresh infusion of animal spirits.
Gundlach knew that infusion would come as a shock to investors lulled by years of depressed volatility and slow upward grind. He said it would be “scary” and that the administration “would not be very prudent,” which is, I think another euphemism for charisma.
A lack of prudence can be thrilling. There’s big money to be made now if you’re fast and contrarian.
But when bond markets generate that kind of money and reward that kind of speed, you’re a long way from the historical status quo. That’s an environment that favors disruptors while punishing more conventional “don’t rock the boat” mentality.
It’s a world made for entrepreneurs who can differentiate themselves from everything that has gone before. That’s charisma in a nutshell.
When you’re small, you don’t have gravity on your side. You need to make a loud noise to get attention. You need to shock the world out of its fog.
Gundlach had $100 billion at DoubleLine going into the 2016 election. The firm now has about $135 billion to deploy.
In hedge fund land, he would be a giant who needs to court institutional money to move the growth needle. That means buttoning down his arguments and showing all his homework before he leans the portfolio in one direction or the other.
But he’s not a hedge fund. DoubleLine is happy to chase the retail investor, which means $135 billion is still a boutique firm in a world dominated by names like Vanguard, Fidelity and Blackrock.
Retail isn’t going to stress test all the assumptions that go into the model. As far as this end of the market is concerned, all bond funds are more or less the same. The only differentiator that really resonates is personality.
And human beings, unlike the institutions that contain and constrain us, love drama. When too much conventional wisdom reads the polls favoring Biden, we want to see an upset.
Gundlach is on the side of upset. When he looks toward November, he might not see chaos but he definitely sees a lot of clouds in the crystal ball. We can’t make assumptions.
Biden and Harris are at a disadvantage in that chaotic environment. And so Gundlach favors the incumbent.
Would four more years of Trump help his strategic posture, much less his efforts to drive big and small accounts to DoubleLine funds? I have to say performance over the last four years has been uneven.
Sometimes Trump has been great for Gundlach’s positions. At other phases, it’s been a miserable slog. But that’s how a wild world works.
Little people who make enough good calls become institutions. Those who can refine a predictive system can make better calls and train other people to keep the calls coming.
DoubleLine tests its calls in investment committee meetings. They’ve got the best crowd wisdom they can find around that table.
Is it better than the polling or are they drinking their own Kool-Aid? We’ll all know soon. Right or wrong, it won't wow the institutions, but the humans will appreciate the drama.
