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Gundlach: Gibson, Gas and Governments, Part 1

This interview took place May 23, 2013. All prices and yields reflect then.

NEW YORK (TheStreet) -- DoubleLine Capital's Jeffrey Gundlach is renowned for his investing acumen, thoughts on monetary policy and slightly different take on investing money, which has captured the attention of both Wall Street and Main Street alike.

Gundlach, 53, who was recently recognized in an elevator standing next to actor Mel Gibson, said that central banks are doing whatever they can to try and stimulate growth, and that's "sorta working" for the time being. Equity markets in both the U.S. and Japan have rallied sharply, aided in no doubt by central bank policies. However, markets don't go up all the time, and the recent volatility we've seen (Japan fell sharply Thursday and Friday last week) could be a sign that the correction is coming.

I recently sat down with him to discuss his thoughts on what the central banks are doing and if it's going to work, housing and updates on some of his trades, including Japan, Apple (AAPL) and natural gas.

Make sure to read Part 2 of the interview.

Chris Ciaccia:

You've said in interviews in the past that housing has a long way to go.

Jeffrey Gundlach:

I don't know about that. What I've said is that housing is going to go higher.


Ciaccia:

Certain markets, San Francisco, LA, you're starting to see a little bit of a froth. Do those markets worry you and is there anything that can be done, or does that froth just have to play out?

Gundlach:

Well, the market must go higher because there's lack of supply. It's the fundamental reason. Buyers are being influenced mightily by zero-interest rate policy and quantitative easing. Those things together create a market that is much higher, therefore there is confidence in it. Without supply, there is only one way to really go. The only thing that could stop the housing market in the near-term is higher interest rates, and that's not going to happen. Housing has to go higher, so that there's more of a balance of supply and demand.

You're right though. Take Orange County for example. In Orange County, now one-third of the residents can afford a home. It's probably going to go down to 20%. It's not so much, as everyone knows, that people want to live in a house. It's money that's fleeing zero-interest rates that have gone into investment funds that are indiscriminately buying properties at the low end. That's what's propped up the low-end. At the high-end, it's people who've grown weary of zero-percent cash balances. So why not invest in something that is tangible, has some sort of psychic value, and there's confidence in it? Real estate is the new gold. Gold went up because it went up, and real estate went up because it's going up, and there's kind of a panic. Doubtless, it will lead to affordability problems, which will lead to headwinds for the housing market down the line. But first, it has to move higher.

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