GUNDLACH: Watch out for a stock market sell-off around inauguration day

• Akin Oyedele
 

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Jeffrey Gundlach, Chief Executive Officer, DoubleLine Capital, speaks at the Sohn Investment Conference in New YorkThomson Reuters

DoubleLine Funds founder Jeff Gundlach said the stock market could sell-off around inauguration day.

During his final investor webcast for the year on Tuesday, he pointed out that stocks typically rise in the days after an election, just as they have.

But they drop after the president is sworn in, as investors realize that he does not have a magic wand to implement everything they are hopeful for.  

Gundlach's presentation was titled "Drain The Swamp," a reference to President-elect Donald Trump's promise to reform ethics in Washington by not relying on career lobbyists and party insiders. However, Trump's top cabinet picks have included former Goldman Sachs staffers, CEOs, and politicians. 

Gundlach was one of the only strategists to correctly forecast that Trump would win. In a webcast last month, he said Americans' discontent with wage growth, income inequality and Obamacare were among the reasons why Trump unexpectedly won. 

Here are highlights from his webcast:

View As: One Page Slides

This was the phrase that won Trump the presidency.

DoubleLine Funds

It's what many people in rural America were looking for when voting for Trump, Gundlach said. 

Why Trump won, in one slide.

DoubleLine Funds

The chart shows that the richest have gained a larger share of household wealth at the expense of the bottom 90%.

More here.

Trump borrowed "drain the swamp" from Ronald Reagan.

DoubleLine Funds

Inflation, as measured by the Consumer Price Index (CPI), is vastly different now compared to when Reagan took office. The Fed Funds rate was much higher then, as well. 

ISM manufacturing was similar, and the unemployment rate adjusted for participation was also similar. 

"Let's face it, a lot of these jobs have been lost to robots. And that is not going away."

DoubleLine Funds

Amazon Go looks like "a real job killer," Gundlach said. The store launching in Seattle next year will scan items automatically as shoppers leave, so they won't need a cashier. 

Here's how the budget has changed.

DoubleLine Funds

One way to get economic growth is by spending more.

DoubleLine Funds

"Clearly, under a Trump administration, this blue area is going to be moving up," Gundlach said.

"This chart indicates that we're way, way behind on our infrastructure bill."

DoubleLine Funds

All you have to do is drive through Midtown Manhattan or pick someone up from Los Angeles International Airport to see the need for more spending, Gundlach said. 

He doesn't believe that the new Republican Congress and Senate will counter Trump's attempts to spend heavily on infrastructure.

Since Trump's win, financial services stocks have gone to the moon.

DoubleLine Funds

But watch out for a broad sell-off near inauguration day.

DoubleLine Funds

Stocks tend to hold their gains into the new year, but it isn't so pretty after inauguration day as the reality sets in that the new president doesn't have a magic wand. 

Given how closely we've followed this pattern, there's every reason to give it some merit and expect a sell-off around inauguration day, Gundlach said.  

"I don't know why there's any correlation here."

DoubleLine Funds

This chart is mostly for entertainment value, Gundlach said. If it's worth anything, it shows that stocks usually go up. 

But the last two papal visits coincided with the top.

Moving over to Europe ...

DoubleLine Funds

France sticks out as a big country with a huge unfavorability rating towards the European Union. The upcoming election could be a real milestone if it goes the way of Brexit and Trump, Gundlach said.

Everyone "massively disapproves" of the way the EU handled the refugee crisis.

DoubleLine Funds

One reason for the discontent is that the unemployment rate has not improved as much as the US.

DoubleLine Funds

Here's a timeline of upcoming events.

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It's been quite a year for interest rates.

DoubleLine Funds

If the US 10-year yield rises above 3%, it would no longer possible to argue that the 30-year bull market is still on, Gundlach said. 

The benchmark rate above that level would hurt stocks and the housing market, he added. 

The December Fed meeting is not about another rate hike, which is widely expected.

DoubleLine Funds

The real narrative is whether the Fed will sound more hawkish.

Inflation is taking off.

DoubleLine Funds

A rise in the costs of shelter, food and energy will push CPI above 3%, Gundlach forecast. 

It's not entirely true that higher rates lead to a stronger dollar.

DoubleLine Funds

Also, this Trump quote on the dollar is worth listening to, Gundlach said.

DoubleLine Funds

The Fed has "capitulated" to the market.

DoubleLine Funds

It's expectations are now more in line with the market's. And when someone capitulates, it's usually at the wrong time, Gundlach said. 

There's been a big flip in yield forecasts.

DoubleLine Funds

The consensus has been too aggressive on the 10-year yield in the past, but it may be right this time, Gundlach said. 

More: Jeff Gundlach DoubleLine Capital Features

One of the Fed's most controversial charts may become great again in 2017

• Akin Oyedele
 

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Federal Reserve Chair Janet Yellen touring Daley College in Chicago in 2014. AP Images

The Federal Reserve's Summary of Economic Projections has done a poor job over the past few years.

For example, the dot plot, which shows where members of the Federal Open Market Committee think interest rates should be in the next few years, consistently overestimated how many times the Fed would actually raise rates.

It's expected that the FOMC on Wednesday will again raise its benchmark interest rate by 25 basis points, to a range of 0.50% to 0.75%. It would be the only rate hike this year. In January, the dot plot showed an expectation for four, and that was cut to two in June.

Market expectations have been a better indicator of interest rates than the dot plot. And in a rare occurrence, both the market and the Fed are now in virtual agreement over the future path of monetary policy, as the chart below shows:

Renaissance Macro

To be sure, the Fed never intended to use the dot plot as a promissory note. But for better or worse, that's how markets treat it.

"This could be the year actually that the Fed dots actually serve as channel markers, so that they give us a better idea of what the Fed would do in terms of policy," said Mike Ryan, the chief investment strategist at UBS Wealth Management Americas. That's because "they now have the conditions met for the process of rate normalization to continue," he told Business Insider.

One of those conditions is the rise in inflation and growth expectations since the election. In 2017 and onward, monetary policy may get a helping hand from President-elect Donald Trump's fiscal policy plans, which could involve tax cuts and $1 trillion in infrastructure investment.

"This may be the year that they don't have to step back, and in fact follow the path that they've set, and even perhaps have to tweak that path up a little bit," Ryan said.

The most recent dot plot, published in September.Business Insider/Andy Kiersz, data from FOMC

But the coming year may not mark the end of so-called easy money at a low borrowing cost, according to UBS, if inflation rises faster than nominal interest rates.

Though the FOMC's actions poorly tracked guidance, one thing that helped credibility is that the Fed never followed what Ryan called "monetary Calvinism." Unlike the religious belief system, the Fed never preordained its future.

And so as usual, any guidance for 2017 and beyond in Wednesday's statement will be open-ended, dependent on the economy's growth and barring any unforeseen event like a war.

Going forward, the convergence between the Fed and the market's expectations lowers the risk of shocking Fed decisions — beginning with Wednesday's likely rate hike.

SEE ALSO: A showdown between Trump and the Fed is looming

DON'T MISS: What 9 Wall Street pros are forecasting for the stock market in 2017

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More: Federal Reserve FOMC Dot Plot

'This spot in my heart, in my mind, will be here for a long time': Gary Cohn says goodbye to Goldman Sachs

• Portia Crowe
 

• 6h
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Gary Cohn. Goldman Sachs

President-elect Donald Trump on Monday announced that Goldman Sachs' COO and president, Gary Cohn, would be joining his administration.

Cohn, who spent 26 years at Goldman Sachs, was the No. 2 executive at the firm after CEO Lloyd Blankfein. He will become director of the National Economic Council, an advisory role to Trump on US and global economic policy.

"Saying goodbye is hard," Cohn said on a company podcast recorded Monday morning. "You know, this has been 26 years, literally, I finish my 26th year next week — really hard. I always knew I would say goodbye — everyone has to leave someday — but it's hard."

He said he wanted to be remembered as a great partner — someone people could easily call, who people wanted to work with, and whose opinion was valued.

"You know, Goldman Sachs has a unique culture, and it's a culture that continues to evolve," Cohn said.

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"I felt like I was part of the culture, and I was part of the evolution of the culture. I was here as a private company, I was here through the IPO, I've been here through the transition into a very public company."

In a statement on Monday, Cohn, who grew up in a working-class family in Ohio, said he shared Trump's vision of making sure every American worker had a secure place in a thriving economy.

Cohn will need to sell his shares in Goldman Sachs to avoid a conflict of interest, and he will be allowed to defer paying any capital-gains taxesfrom the sale. As of November 14, he held 872,712 shares, according to Bloomberg, currently worth about $207 million.

At Goldman, Cohn had advocated diversity within the firm. He was also known for his ability to build strong client relationships — in fact, he said, he typically saw more than 500 clients every year.

He said he would miss his clients and the people at the firm.

"Now I'm going onto a spectacularly new challenge, and I'm sure many of those voids will get filled," he said. "But this spot in my heart, in my mind, will be here for a long time."

SEE ALSO: Goldman Sachs' No. 2 exec will get a big payout now that he's joining Trump's administration

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More: Wall Street Gary Cohn Goldman Sachs Trump administration

Trump picks Exxon Mobil CEO Rex Tillerson as secretary of state

• Peter Jacobs
 
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Exxon Mobil CEO Rex Tillerson delivering remarks on March 27, 2015, in Washington. AP Photo/Evan Vucci

President-elect Donald Trump has picked Exxon Mobil CEO Rex Tillerson as secretary of state, his team confirmed Tuesday morning.

"I have chosen one of the truly great business leaders of the world, Rex Tillerson, Chairman and CEO of ExxonMobil, to be Secretary of State," Trump said in a tweet.

Tillerson's nomination came after weeks of speculation and numerous rumored candidates, including 2012 Republican nominee Mitt Romney and former New York City Mayor Rudy Giuliani.

"His tenacity, broad experience, and deep understanding of geopolitics make him an excellent choice for secretary of state. He will promote regional stability and focus on the core national security interests of the United States," Trump said.

He continued: "Rex knows how to manage a global enterprise, which is crucial to running a successful State Department, and his relationships with leaders all over the world are second to none. I can think of no one more prepared, and no one more dedicated, to serve as secretary of state at this critical time in our history."

Word of Tillerson's candidacy first surfaced via Trump transition officials on Saturday. The 64-year-old Texas native has no formal diplomatic experience, and he has spent his entire career at Exxon.

"I am honored by President-elect Trump's nomination and share his vision for restoring the credibility of the United States' foreign relations and advancing our country's national security," Tillerson said in a statement released by the Trump team. "We must focus on strengthening our alliances, pursuing shared national interests and enhancing the strength, security, and sovereignty of the United States."

Tillerson had the support of former Defense Secretary Robert Gates, former Secretary of State Condoleezza Rice, and former Secretary of State James Baker, among other establishment Republicans.

Tillerson's nomination may come with some baggage, however, as both Democrats and Republicans have accused him of coziness with Russian President Vladimir Putin. Tillerson dealt with Russia extensively as Exxon CEO, and he received the Order of Friendship decoration from the country in 2013.

Sen. Marco Rubio of Florida was one leading Republican to voice concern over Tillerson's nomination:

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Being a "friend of Vladimir" is not an attribute I am hoping for from a #SecretaryOfState - MR

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Other candidates who had been considered for Trump's secretary of state included Romney, Giuliani, former CIA Director David Petraeus, and retired Marine Corps Gen. John Kelly.

Chris Sanchez contributed to this report.

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More: Rex Tillerson Secretary Of State Donald Trump Exxon Mobil

Chinese industrial output and retail sales are accelerating

DAVID SCUTT 

DEC 13, 2016, 1:14 PM   

Getty Images.

Chinese industrial output and retail sales accelerated in November while urban fixed asset investment firmed, adding to evidence that the world’s second-largest economy is ending 2016 on a strong note.

According to China’s National Bureau of Statistics (NBS), industrial output grew by 6.2% in the year to November, topping expectations for an unchanged reading of 6.1%.

Within that figure, mining sector output fell by 2.9%, offset by increases of 6.7% and 9.9% in manufacturing output and the production and supply of electricity, heat, gas and water.

Crude steel output rose by 5% compared to a year earlier, jumping to 66.29 million tonnes. It was the fastest annual increase since June 2014, but below the 68.51 million tonne level of October.

So far this year it has increased by 1.1% on the levels seen in 2015.

Electricity output surged by 7% year-on-year, rising to 503.4 billion kilowatts.

Coal output fell by 4% year-on-year to 3.05 billion tonnes, although this was 9% higher than the levels of a month earlier.

After a surprise deceleration in October, nominal retail sales also rebounded, growing 10.8% from a year earlier.

Not only did that obliterate forecasts for an increase of 10.1%, it was the fastest year-on-year pace since December last year.

In real terms, adjusted for price movements, sales increased by a smaller 9.2%.

Like the headline figure, online retail sales also impressed, jumping 26.2% on the levels of a year earlier.

Urban fixed-asset investment grew by 8.3% between January to November compared to the same period in 2015, unchanged from the pace seen in October and in line with market forecasts.

The NBS said that investment by public sector firms grew by 20.2% over the same period, still overshadowing that from the private sector which grew by a smaller 3.1%.

However, there are signs that private sector investment is improving with November’s figure 0.2 percentage points higher than that reported in October.

The NBS said that investment in real estate increased by 6.5% year-on-year between January to November, 0.1 percentage points lower than the first ten months of the year.

Investment in residential buildings grew by 6% over the same period, 0.1 percentage points higher than the levels of a month earlier.

Property sales growth increased by 7.9% over the same period, although this was the slowest pace reported since December 2015.

Following the release of the data, the NBS said that the economy had “maintained moderate but steady and sound development in November with positive changes in production, demand and expectations”.

In the wake of strong PMI and international trade reports earlier in the month, and somewhat unusually, it’s unlikely that many analysts outside of the country will disagree on this occasion.

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