gunlach presentation
TRANSCRIPT
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Investment Cubism
Jeffrey GundlachChief Executive Officer
Chief Investment Officer
June 20, 2011
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Domestic Credit Market Debt as % of Gross
Domestic Product 1929-2009
2009353%
400%
Year 1
Year 1BHO
1933299%
300%
350%FDR
Year 1GWB
Presidency
2001
276%
250%Year 1HST
GHWBPresidency
res ency
Year 1
1951130%
1989229%
150%
200%Presidency RWR
Presidency
161%
100%
293235384144475053565962656871747780838689929598010407
191919191919191919191919191919191919191919191919202020
Source:MorganStanley,FederalReserve,BureauofEconomicAnalysis
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Government Promises-To-Pay
Publicly Held Treasury Debt & Accrued Interest
$52.8$56.4
$62.3
$70.0
.
$43.3$46.4
.
$50.0
.
$26.5$30.1
$30.0
.
$7.9
$10.0
.
. . . . . . ..
FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009Source:U.S.Treasury,PeterG.PetersonFoundation3
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Nonfarm Payroll
108
110
104
106
t=100 1953
1957
100
102
ess
ionStar
1970
1973
1980
96
98Rec
1981
1990
2001
92
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40
Source: Bureau of Labor Statistics, Bloomberg Financial
4
Months Since Start of Recession
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Federal Receipts as % of Debt:
60%
70%
t
Gross Receipts as % of Debt
Net Receipts as % of Debt
OMB Estimate
40%
50%
FederalDe
h2016)
30%
pts
as%o
f
194
0throu
10%Recei
1940
1943
1946
1949
1952
1955
1958
1961
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012(e)
2015(e)
Source: Office of Management and Budget (OMB)
Gross Receipts equal Individual Tax, Corporate Tax, Excise Tax and Social Insurance and Retirement Receipts
Net Receipts equal Gross Receipts less Social Insurance and Retirement Receipts
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Federal Tax Receipts as a % of GDP
25%
20%
%o
fGD
P
09
15%
eceiptsas
thro
ugh
20
5%ederalTax
1929
0%
Source: Office of Management and Budget, DoubleLine Capital
1929 1935 1941 1947 1953 1959 1965 1971 1977 1983 1989 1995 2001 2007
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Government Optionso o ve e e t
Problem
* Tried These Alread
7
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Impact of Quantitative Easing onUS 10-Year Treasury
4.5%
3/31/10QE1 purchases
Jan 1, 2009: QE1 Start - $600 bnMar 18, 2009: QE1 Expanded to $1.725 tnMar 31, 2010: QE1 Ends
-4.0%
11/25/08
.Jun 2011: QE2 Proposed End
3.0%
.QE1
announced
3/18/09QE1 expanded
2.5%
Jackson Holespeech QE2 hinted
1/1/09
11/3/10QE2 purchases
begin
2.0%
QE1 purchasesbegin
Source: US Treasury Department, Bloomberg Financial Services
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National Debt Ceiling versus Gross Federal Debt
Statutory limits have been reduced 5 times since 1940
25
) Debt Subject to Limit
15
20
rough2
01
Gross Federal Debt
10$Trillion
ea
r1940t
5
dofFiscal
0
1940
1943
1946
1949
1952
1955
1958
1961
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
12(e)
15(e)
(E
Source: Office of Management and Budget, DoubleLine
9
2 2
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Fiscal Year 2011 Requested Budget
Dept of HomelandSecurity1.53%
Dept of HUD1.48%
Dept ofEnergy1.28%
Dept of Justice0.89%
Dept of State0.80%
InternationalAssistance Programs
0.68%
Dept of Health andHuman ServicesDept of Veterans
Dept ofEducation2.63%
Dept of
Transportation2.42%
NASA0.50%
Blue indicates
DiscretionarySpending
.
Social Security
Dept of Defense20.13%
a rs3.47% Grey indicates
MandatorySpending
22.04%
Allowances
FDIC0.41%
Dept of Agriculture4.07%
Dept of theTreasury3.84%
Dept ofLabor3.32%
Office of PersonnelManagement
2.10%
Other Defense CivilPrograms
1.71%
0.60%
Source: Office of Management and Budget (OMB)
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Top 0.1% Income Earners
%
U.S Japan U.K.France
Source: Saez and Piketty
11
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Marginal Tax Rate on Highest Individual
Income Bracket
100
70
80
50
60
.
30
40
0
10
1913
1916
1919
1922
1925
1928
1931
1934
1937
1940
1943
1946
1949
1952
1955
1958
1961
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
Source:InternalRevenueService,DoubleLineCapitalLPasofDecember31,2009
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U.S. Housing Market
13
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S&P Case- Shiller 20-City Home Price Index
220
11
180
x Fe
bruary
2
160
Price
Ind
001
throug
h
-32.6% decline
120January
2 July 2006 to April
2009
100
Source: S&P Case Shiller, Bloomberg Financial Services
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U.S. Homeownership Rate
70%
60%
65%
Rate
010 -4.2% drop from
1930-1940
2.7%dropfrom
20042010
55%
eownershi
0t
hrough peaktotrough
45%
50%Ho 19
40%
Source: U.S. Census Bureau
*1900-1960 based on Decennial Census Data; 1965-2010 Annual Census Data
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New Single-Family Home Sales
1400
1600
's) ,2011
1000
1200
lRate(,
000
ughApril3
600
800
SoldAnnua
1,1
963thro
200
400
Units
January3
0
1/1/1963
1/1/1964
9/1/1966
7/1/1968
5/1/1970
3/1/1972
1/1/1974
1/1/1975
9/1/1977
7/1/1979
5/1/1981
3/1/1983
1/1/1985
1/1/1986
9/1/1988
7/1/1990
5/1/1992
3/1/1994
1/1/1996
1/1/1997
9/1/1999
7/1/2001
5/1/2003
3/1/2005
1/1/2007
1/1/2008
9/1/2010
Source: Bloomberg Financial Services
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1 1 1 1 1
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Housing Starts
300
200
t=100
1960
150
essionSta
1973
1980
1981
50
Re 1990
2001
2008
0
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38
Months Since Start of Recession
Source:Bloomberg
Financial
Services,
US
Census
Bureau
Aninvestmentcannotbemadedirectlyinanindex.17
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Building Permits
250
150rt=100
1960
1970
100
cessionSt
1973
1980
1981
50
R2001
2008
0
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38
Months Since Start of Recession
Source:BloombergFinancialServices,USCensusBureau
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New Home Sales
200
250
150art=10
0
1970
1973
100
ece
ssionS
1980
1981
1990
50
R
2008
0
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36
Months Since Start of Recession
Source:BloombergFinancialServices,USCensusBureau
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SubPrime Serious Delinquency and
Conditional Default Rate
43.4%50%
60%
60++
40%
0++ay2011
CDR
20%
30%
eCDRvs
5through
8.5%10%
Subpri
anuary20
60++referstoseriousdelinquencydefinedasloans60 or90dayslateinmortgagepayments,oralreadyinforeclosureorREOstatus.r me e ne as > an 725andLTV>=75
SubprimedefinedasFICO
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Alt-A Serious Delinquency and Conditional
Default Rate30%
60++
.
20%
0++
May2011
8.3%
10%
15%
-ACDRvs
005throug
0%
5%Alt
January
60++referstoseriousdelinquencydefinedasloans60 or90dayslateinmortgagepayments,oralreadyinforeclosureorREOstatus.r me e ne as > an 725andLTV>=75
SubprimedefinedasFICO
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Prime Serious Delinquency and Conditional
Default Rate10.7%
10%
12%
60++
8%
++May201
1CDR
3.3%4%
eC
DRvs6
05through
0%
2%Prim
January20
60++referstoseriousdelinquencydefinedasloans60 or90dayslateinmortgagepayments,oralreadyinforeclosureorREOstatus.Jan-0
Apr-0
Jul-0
Oc
t-0
Jan-0
Apr-0
Jul-0
Oc
t-0
Jan-0
Apr-0
Jul-0
Oc
t-0
Jan-0
Apr-0
Jul-0
Oc
t-0
Jan-0
Apr-0
Jul-0
Oc
t-0
Jan-1
Apr-1
Jul-1
Oc
t-1
Jan-
11
Apr-
11
r me e ne as > an 725andLTV>=75
SubprimedefinedasFICO
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Historical Loss Severity
72.6%
70%
80%
Prime
Alt-A
59.3%50%
60%
ityhMay2011
Subprime
47.5%
30%
40%
Lo
ssSeve
2005throu
0%
10%January
60++referstoseriousdelinquencydefinedasloans60 or90dayslateinmortgagepayments,oralreadyinforeclosureorREOstatus.r me e ne as > an 725andLTV>=75
SubprimedefinedasFICO
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Loss Severities Increase With Longer
Source:Amherst
Securities
as
of
April
30,
2011
24
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Loss Severities Increase With Longer
Source:Amherst
Securities
as
of
April
30,
2011
25
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Liquidation Lag Times Are Systematically
Source:Amherst
Securities
as
of
April
1,
2011
26
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ABX 07-1AAA
100
120
11
80
AAA
June1
3,2
60
B
X2007-1
07
through
20May10,2
0
y-0
7
l-07
-07
-07
-08
r-08
y-0
8
l-08
-08
-08
-09
r-09
y-0
9
l-09
-09
-09
-10
r-10
y-1
0
l-10
-10
-10
n-1
1
r-11
y-1
1
Source:MarkIt
27
Ma J
Se
No
Ja
Ma
Ma J
Se
No
Ja
Ma
Ma J
Se
No
Ja
Ma
Ma J
Se
No
Ja
M Ma
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ABX 07-1AAA v. Bank of America Stock
60
100
110
11
11
ABX 2007-1 AAA
4080
90
tockPrice
June1
3,2
AA
June1
3,2
BAC Equity
20
30
50
60
70
fA
merica
007
through
ABX07-1
007
through
1030
40Bank
May10,2
May10,2
020
Source:MarkIt,
Bloomberg
Financial
Services
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S&P 500 Index and Shanghai IndexYear-End 2007 throu h June 13, 2011
6000
1400
1600
2011
2011
4000
5000
1000
1200
itehJune
13,
hJune
13,
3000
600
800
SH
Compos
20
07throu
S&P500
20
07throu
1000200
400
cember31,
cember31,
00DD S&P 500 Shanghai Composite Index
Source:BloombergFinancialServices,DoubleLineCapitalLP
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Rolling 5-Year Volatilities of InvestmentGrade Bond Sectors
Historically, mortgages have had lower volatility than other investment grade credits
7.0%
5.5%
6.0%
.
dStandard
ay201
1) Municipal Bonds
IG Credit
MBS
4.5%
5.0%
hAnnualiz
rch1996-
3.0%
3.5%
4.0%
ing60-mon
eviation(M
2.0%
2.5%Roll D
Source: Bloomberg, BofA/Merrill Lynch IndicesAn investment cannot be made directly in an index. 31
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Rolling 3-Year Volatilities of InvestmentGrade Bond Sectors
9%
rd Treasury
7%
izedStanda
-May2
011)
Municipal Bonds
IG CreditMBS
5%
6%
nt
hAnnual
Ma
rch1996
3%
4%
olling36-m
Deviation(
2%
R
Source: Bloomberg, BofA/Merrill Lynch IndicesAn investment cannot be made directly in an index. 32
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Rolling 5-Year Volatilities:Hi h Yield Com arison
14%
16%
eviation
Treasury
Municipal Bonds
10%
12%
Standa
rdD
y2011)
Long Treasury
High Yield
8%
An
nualized
h
1996-M
4%
g60-month
(Mar
0%Rollin
Source: Bloomberg, BofA/Merrill Lynch IndicesAn investment cannot be made directly in an index. 33
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Rolling 3-Year Volatilities:Hi h Yield Com arison
18%
20%
eviation
Treasury
14%
16%
Standa
rdD
y2011)
Long TreasuryHigh Yield
8%
10%
An
nualized
h
1996-M
4%
6%
g36-month
(Mar
0%
2%Roll
in
Source: Bloomberg, BofA/Merrill Lynch IndicesAn investment cannot be made directly in an index. 34
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Hedge Fund Investment Cubism
Weightings Sector
Yield
(Cash
Refinancing
Capital AtDepression
RisingInterest
RateRisk
Flow) Risk
(Duration)
1 25% GNMAPrincipal
Paying 14%
5.7
5.7 5.0
2 15% GNMAInterestOnly 27% 15.0 0.3 2.2
3 5% OtherGNMA 6% 0.1 0.6 0.6
4 40% AltARMBS 11% 8.3 6.0 1.6
5 10% PrimeRMBS 8%
1.6 1.0
0.2
6 5% OtherMBS 18% 0.5 0.5 0.2
100% Total 14% 0.2 1.5 6.2
RateHedged 12% 0.2 13.9 0.0
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