Highlights From Jeff Gundlach’s Conference Call

Jeffrey Gundlach, manager of $53 billion King Dollars, hates Janet Yellen’s Fed almost as much as I do. He’s been warning about their idiocy and was right in predicting a market slump. Today he held a conference call to discuss markets and the price of crude, which he said bottomed today, from a technical point of view (whatever the fuck that means).

Here are some highlights.

“This is a capital-preservation market, not a money-making environment,” said Gundlach, co-founder of Los Angeles-based DoubleLine Capital. For economic growth, “2016 is not looking all that great, potentially.”

“We could be looking at a really ugly situation during the first quarter of 2016,” he said. “It’s particularly more likely to happen if the Fed keeps banging this drum of raising interest rates against falling inflation.”

“You don’t have to try to call a direction right now,” he said. “If it’s going to move, it’s going to move big and we’re going to play a go-with-it strategy.”

“Oil goes below $40, it’s frightening for geopolitical behavior,” he said. “Guess what, folks? It’s below $40 and this frightening political behavior is upon us. And, also, compounding the problem is that we have a lame-duck president, who I think will do absolutely nothing in response to military activity or other bad actors out there.”

Gundlach thinks oil can trade back to $45.

Anyone reading me over the past few months knows I’ve been harping on the capital structure of the basic resource sector. Any time markets crater and underlying fundamentals deteriorate, there is cause for concern with heavily debt burdened companies.

Since summer, as the prices of these stocks dropped, their debt/equity ratios have swelled, effectively cutting off a vital source of funding for an industry that will need to restructure a ton of debt, starting in 2017.

Cramer mentioned it tonight in his Mad Money monologue. You can view the clip here.

While it’s true, the $300 billion number is an accurate one, it isn’t forward thinking. Prices have dropped drastically for crude and other commodities in recent weeks, which is bound to hurt revenues and earnings forecasts for the respective industries, no?

Using Exodus, I scanned for basic resource companies that aren’t exactly distressed, but teetering–between 2-4.99x debt/eq. The numbers are nothing less than demonic.

In addition to the $300 billion in debt that is going to need restructuring, there is another $345 billion right behind it, who will become highly distressed should their share prices continue to fall.

Some names to keep an eye on are:

OGZPY (Russian oil giant)- $82 billion

ETE- $32 billion

VALE- $32 billion

PKX- $23 billion

FCX- $23 billion

MT- $20 billion

ACH- $15 billion

CHK- $12 billion

RIG- $9 billion

YZC- $7.5 billion

TCK- $7 billion

GGB- $7 billion

The list stretches long and wide.  There are 68 companies in all in this soon to be distressed debt group of shit.  The median 1 yr decline for these companies was -66%. Year to date, these stocks are down 23%.

Do you see where this is going?

Behind these companies are the “premier names”, with debt/eq levels ranging from 0.5 to 1.99–who have a collective debt burden of $999 billion.  In all, there is upwards of $2 trillion in basic resource debt.

As you know, “The Fly” has been  quite busy providing the masses with news and information, working 22 hour days (that shit it true), going without rest or sitting back on my laurels. At the same time, he’s been creating an investment masterpiece for those initiated inside of Exodus.

Before 2015 ended, I cleared out over 30 positions, stocks that I’ve held for years, because I anticipated a ghostly first month of trade for 2016. I positioned into TLT and cash, waiting for my market timing algorithms to tell me when to allocate into SPY.

Over the past week, I’ve been staggering into SPY, every morning, without emotion, and now I am 166% long with a cost basis of 195.57. I will make my final purchase tomorrow and then wait to unwind the position, in layers, as the mandatory 10 day holding period expires.

This will be my best call ever.

I’m only revealing this game plan for you because these are extraordinary times and I want to help. When things settle down, out of respect for paying members, I will be a bit more mum about my actions.

The market will  cooperate, rest assured. Today’s 100 point gain, in the face of absurd negativity, was just the beginning of what I imagine will be a 3-4% run in the general indices.

Remember to sell the rips.

I’ve been saying this for month. Now it’s becoming main stream thinking. By my count, there is around $300 billion in distressed basic resource debt, encompassing all commodities, not just oil. Of that, PBR, SDRL, PAGP, SID, LINE, MTL, CRC and BTU have the most debt.

Click here for Cashin clip.

These companies are toast, done. Since 2009, investment banks have been peddling this shit to people, as a way to replace all of the mortgage crap they made a killing on before the housing collapse, with reckless abandon. Ten percent oil and gas trusts, MLPs, limited partnerships, preferred offerings and of course your regular run of the mill bonds were all part of the ‘for sale’ items to every client at every investment bank, for more than half a decade.

We haven’t seen the fall out yet. Right now we’re just getting the shock. Later on we’ll get to see the aftermath.

Broader markets are down upwards of 6%, making this the single worst start to a new year ever. But beneath the veneer of a pleasant 6% drubbing lies an ugliness only dreamt about in the distorted machinations of Tyler from Zerohedge.

Notable median returns by industry, ytd

Aluminum -26%
Shipping -24%
Tankers -23%
Oil and Gas Exploration -20%
Auto dealerships -19%
Independent oil -18%
Biotech -17%
Copper -17%
Steel and Iron -15%
Solar -14%

The list goes on and on. As a point in fact, zero sectors are up this year, not even gold. Food Major-diversified is the best performing sector, down 0.09%, with leadership in PF and LANC. GLD is up 2.4% and TLT is up 2.35%. Other than that, you’d need to be short or long inverse ETFs to make money this year.

Inside Exodus, since 2014, I kept an index of bubble stocks, that traded at a premium to the rest of the market. The idea was to assess risk, in order to help with my timing.

Year to date, its been hammered into fucking sea shells, down 12%. For the day, it’s still up around 0.4%, despite broader market weakness.

Today’s reversal is nothing less than apocalyptic. This is it, the very end of days. Soon I will be entering your town with my militia to seize dry goods and declare myself Lord of your bullshit community. These losses that you’re enduring are evil, from a demonic like possessed market.

I’m not regretting my leveraged SPY position. It’s part of the plan. Get super tits aggressive when everyone is crying like infants in their cubicals, then blow out when traders are talking about new sports cars.

Or, I could just collect assets like a moron and be down 12% for the year.

Bear in mind, 25% of my assets have been in TLT from the end of 2015.

So, what have we learned?

Board the ark; the end is now. But, bubble stocks are hanging in there today. Maybe we recover and rally into the bell. For the love of God, we’re gonna have to rally at some point.

No? Maybe?

Yesterday Macquarie downgraded the stock and caused a 20% rout. Today Jefferies jumped onboard to kick FCX in the teeth and the stocks fell by only 9%. Clearly no one gives a shit what the Jefferies analyst thinks.

Here are some snippets from the report.

This is a major bellweather in the commodity space. To see FCX getting smoked like this has to be cause for concern, which is probably why markets are selling off early gains now.

Again, for markets to rally, we’re gonna need a respite from the fanatical selling in commodities and commodity stocks. We’re not there yet.

This is very reminiscent of Henry Blodget’s crazy faced call on Amazon, back in the dot com days. An analyst at Standard Chartered has gone full zerohedge and declared oil was completely fucked, without soles on its shows, heading for 10 bucks.

Standard Chartered said there would be no bottom in sight, until prices fall to $10 and “money managers in the market conceded that matters had gone too far”.

“Given that no fundamental relationship is currently driving the oil market towards any equilibrium, prices are being moved almost entirely by financial flows caused by fluctuations in other asset prices, including the dollar and equity markets,” said Standard Chartered.

I remember when crude last fell to $10; it ushered in the dot com bubble and people got rich as fuck. Truth be told, had you started to leg into oil stocks when it hit $10, slowly but surely, you made a fortune over the coming years. I did a study on this last year and learned that oil and tech were mirror opposites back then and the right play was to fade tech in 2000 in exchange for crude stocks.

If my memory is correct, oil stocks weren’t too popular and trading was thin, almost by appointment. No one knows where oil will bottom; but $10 seems a bit extreme, even for me.

I added to my SPY position, making me 166% long into the teeth of cataclysm. As a point in fact, Le Fly gives zero fucks about your cataclysm. I will see your apocalypse and raise you with MOAR purchases of SPY.

My basis has been reduced to $195.57. I’m wholly looking for a rally of monumental, yet distinguished, proportions.

Yes, we all know the markets will decline by 30% in 2016. We’re well aware of the fact that stocks are meaningless rabble, scribbles of gibberish on little pieces of crumpled up paper.

BUT, before all of that happens, by the laws dictated by mathematics, we shall rise from the ashes and strike down those around us who attempt to get in our way of egregious displays of greatness.

What the fuck is wrong with these people? This analyst seems like a perfectly normal person, no grotesque abnormalities or disfigurements about her person. Yet, like a monster, she comes onto my teevee to say that growth has sucked and she’s downgrading her GDP projections to 1.8%, yet she still believes the Fed will hikes rates 3 times in 2016, all at the back-ass end of the year.

How?

She then delved into the absurd by discussing the Chinese yuan crisis and how it might check the Fed from going all hog wild and fucking crazy. Meanwhile, back at the ranch, she’s one of my more hawkish analysts on Wall Street, with more idiots only gearing up for two hikes.

In summary, the U.S. economy sucks and the China yuan story might derail us, cartoon style. She doesn’t think the Fed will move in March–because that’d be messenger in Sparta asking for earth and water madness. Yet, at the same notion, the Fed will green light itself to ravage the economy later on with three hikes.

Fuck out of here.