BRITAIN’S vote to leave the European Union (EU) is evidence we’re living in an increasingly uncooperative world, Los Angeles money manager Jeffrey Gundlach said. That’s why he’s betting on gold, short-term bonds and other assets seen as safe havens, rather than on stocks.
Gundlach, chief executive of DoubleLine in Los Angeles, said in February that he expected the price of gold, then about $1,200 per ounce, would rise to $1,400— a bet that looked prescient after gold climbed nearly 5 percent on Friday to $1,320, the most in two years.
He made that bet not because of the possibility of the Britain’s departure from the EU, which he thought unlikely, but because he believed investors had lost confidence in the ability of central bankers to boost economic growth through monetary policy.
On Friday, though, he said Britons’ unexpected decision to leave the EU is evidence of “a bear market in confidence” across the board. He spoke on CNBC.
Other investment managers, while acknowledging that the British could hurt the global economy and affect markets in the short term, don’t see it as a reason to head for the exits, at least when it comes to the US stock market.
Garrett D’Alessandro, chief executive of City National Rochdale, City National Bank’s wealth-management business, said the domestic market, even accounting for a big sell-off on Friday, is holding its own. The Dow Jones industrial average fell 3.4 percent on Friday, closing at 17,400. While that’s a big single-day drop, it brought the index back to where it was trading about a month ago—and well above where it’s been for most of the year.
“We’re not in the camp that believes we should have most of our money in fixed income,” D’Alessandro said. “The other day, the S&P 500 was near an all-time high. All those less optimistic investors have been in the wrong place.”
The market’s reaction to the Brexit vote likely has much less to do with any concrete consequences of the vote—Britain won’t leave the EU for about two years—than with what happens next and its effect on the global economy.
What will be the terms under which Britain leaves the union? What kind of new trade deals will Britain reach with other nations once it is on its own? Will Britain’s leaving spur other EU members to secede?
Those questions are won’t be answered for years.