The subprime credit market is a disaster, and it will get worse
Right. The subprime crisis spread into the 2008 global financial crisis, and this warning is cited in DoubleLine’s founding story
Famous Traders · Bonds
Jeffrey Gundlach
Jeffrey Gundlach / Founder of DoubleLine and the New Bond King
A former rock musician who became a world-class MBS fund manager, was fired by a single email, then built a new firm with $50 billion in assets in under three years. On this page you can try the copper-to-gold indicator he likes, test the risk of MBS, and guess whether his famous predictions came true.
DOUBLELINE CAPITALBond Kingthe new one
JG
AUM · NOV 2012$50BIn under 3 years
- 2009Fired by TCW, founded DoubleLine
- 2012Assets about $50B
- 2019Assets over $140B
MBS · TOTAL RETURNLOS ANGELES
Illustration: a De Stijl-style composition, because Gundlach is a collector of modern art. No openly licensed photo was found
Born1959
Founded DoubleLine2009
Back pay won in court$66.7M
Peak assets (2019)$140B+
TCW Total Return BondTop 2%Ranking among intermediate-term bond funds over the 10 years before he was fired
DoubleLine · 2009 → 2012$50BAssets under management, in under 3 years from founding
Case against TCW · 2011$66.7MDeferred compensation the jury awarded him and his colleagues, before a settlement
01
ProfileQuick facts
NameJeffrey Gundlach
Born30 October 1959 in Amherst, New York, USA
EducationBachelor’s degree in mathematics and philosophy from Dartmouth College (1981), summa cum laude, then PhD studies in mathematics at Yale, which he did not finish
Before financePlayed rock music in Los Angeles alongside a day job at an insurance company
TCWWorked there for about 24 years until 2009, rising to chief investment officer (CIO), specialising in mortgage-backed securities (MBS)
AwardMorningstar Fixed-Income Fund Manager of the Year in 2006 for the TCW Total Return Bond fund
FirmFounded DoubleLine Capital in December 2009, with Oaktree holding a 20% stake. Assets were about $50 billion at the end of 2012 and over $140 billion in 2019
NicknameBarron’s called him the King of Bonds in 2011, and the financial media often call him the new Bond King. He is also an avid collector of modern art
02
From drums to DoubleLineFrom a rock band to a firm managing over a hundred billion dollars
Gundlach studied mathematics and philosophy at Dartmouth, then began a PhD in mathematics at Yale but dropped out to play rock music in Los Angeles. He told CNBC that he got into finance after watching a TV show ranking high-paying jobs, and sent applications to investment management firms thinking they did the same job as investment banks
At TCW he made his name in mortgage-backed securities (MBS), instruments that look simple but hide a risk, because homeowners can repay their loans early at any time. Tap each slide to follow his journey
CAREER · SLIDE DECKGundlach’s journey
1981 · He graduated from Dartmouth summa cum laude in mathematics and philosophy, then began a PhD in mathematics at Yale but dropped out, moving to Los Angeles to play rock music while working a day job at an insurance company
1 / 13
What he told CNBC about the TV show ranking careersI didn’t know what investment banking was, but I figured number one was good enough for me
Paraphrased from a 2011 CNBC interview, not a direct quote
03
Copper / goldLab: does copper divided by gold really signal the direction of rates?
Copper rises when the economy is busy; gold rises when people are afraid. The ratio of the two is like a thermometer for the economy. Gundlach uses it to gauge the direction of the US 10-year Treasury yield. Pick a range of years and see how closely the two lines move together
Correlation (r)—
Moved the same direction—
Ratio change—
Yield change—
Uses approximate annual averages of the gold price (dollars per ounce), the copper price (dollars per pound) and the US 10-year Treasury yield, not official figures. An r near 1 means the lines move together, near −1 means opposite, near 0 means hardly related. Annual data has few points, so results can change a lot as you shift the period
What this means for gold and Forex
Gold is the denominator of this ratio. When gold rises faster than copper, the ratio falls, which in the past often came with falling rates and a weaker dollar. But in 2022–2024 gold rose alongside high rates, because many central banks were buying gold. A relationship that once worked must always be rechecked
CROSS-MARKET · COST
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04
Negative convexityLab: MBS vs government bonds, who has the edge when rates move?
MBS pay higher interest than government bonds, but with a hidden catch. When rates fall, homeowners refinance and repay principal early, so MBS prices can only rise so far. When rates rise, people repay more slowly, the life of the MBS extends, and prices fall harder than expected. Adjust the settings to see when the extra interest is worth this risk
Government bond, 1 year—
MBS, 1 year—
MBS wins or loses by—
Average MBS life after the rate move—
A simple model: the government bond yields 4% with duration 6 and positive convexity, while the MBS starts at the same duration of 6, but its duration shrinks when rates fall and extends when rates rise (between 1.5 and 9), as if rates changed at the start of the year. Not the performance of any fund. Real MBS also carry credit and liquidity risk
What this means for Forex
Some positions have limited gains but unlimited losses, such as holding a high-yielding currency pair to collect daily swap. You earn a little every night, but if the currency reverses sharply, the price loss can wipe out a whole year of swap in a few days. The same principle as MBS: higher interest is often payment for a risk you can’t see on a normal day
SPREAD · CARRYSmall spreads add upTrade with XM through 1TRADER and get up to 90% of the IB commission on every lot
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05
Call sheetGame: guess whether Gundlach’s famous predictions came true or missed
Gundlach gives webcasts regularly and often makes predictions the market watches. Guess card by card whether each prediction turned out right or missed, then see what actually happened
0 / 4Guess every card to see your result
Donald Trump will win the US presidential election
Right. He called it even before the primaries began, citing workers’ frustration with wages that had barely grown
The S&P 500 will end 2018 in the red if the 10-year yield rises above 3%
Right. The 10-year yield rose above 3% that year, and the S&P 500 ended 2018 down about 6%
The US 10-year Treasury yield will reach 6% by 2020 or 2021
Missed. The 10-year yield instead fell to a low of about 0.5% in August 2020 during COVID, and stayed below 2% throughout 2021
06
Fact checkFact check: truth and stories passed along
Gundlach’s story includes lawsuits, famous predictions and personal anecdotes. We sort each one by the weight of the evidence
Fired from TCW by email
TCW announced the firing in an email to all staff on Friday, 4 December 2009, as Yahoo Finance recounted in its story of DoubleLine’s first decade
Fired for poor performance
His fund was in the top 2% over 10 years. TCW’s CEO testified in court that he fired him because he felt the firm was being threatened, amid disputes over power and pay
Lost a trade secrets case
The jury found that TCW’s trade secrets had been used, but awarded him $66.7 million in deferred compensation. In the end both sides settled on undisclosed terms
Won a fixed-income manager of the year award
Morningstar named him Fixed-Income Fund Manager of the Year in 2006 for the TCW Total Return Bond fund
Got into finance because of a TV show
This is a story he told CNBC himself: he watched a show ranking high-paying jobs, then sent applications to the wrong type of firm. There is no other evidence confirming it, but nobody has disputed it
Correctly predicted Trump would win
Advisor Perspectives reported that he made this call in early January 2016, before the primaries began
Always calls the direction of rates right
In mid-2018 he expected the 10-year yield to reach 6% by 2020–2021, but rates instead fell to about 0.5% in 2020. Missed predictions get talked about less than the hits
The copper/gold ratio predicts rates
Annual averages for 2005–2021 clearly moved in the same direction as the 10-year yield, but in 2022–2024 rates rose sharply while the ratio fell. See for yourself in the lab above
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07
LessonsLessons for Forex and gold traders
Your checklist
0/4
Watch several markets at once
Gundlach uses copper against gold as a signal for rates. Forex and gold traders should also watch bond yields, the dollar and commodities together, but always recheck that the relationship still holds
Know that gains and losses aren’t equal
MBS gain little when rates fall and lose a lot when rates rise. Trades have asymmetric sides too, such as swap paid every night or price gapping past your stop loss on big news. Think through the result in both directions before opening an order
Write down predictions and check the results
People remember only the predictions that came true. Writing down your reasoning every time you enter a trade, then coming back to check whether it was right, is the only way to know whether your thinking has a real edge or you were just lucky
Economic news moves rates
Inflation, jobs data and central bank meetings move bond yields first, then currencies and gold follow. Know the release dates in advance to control risk
08
Quiz5-question quiz
Question 1 / 5
In which year did Gundlach found DoubleLine Capital?
December 2009, just 10 days after TCW fired him
Which instrument is Gundlach most expert in?
He made his name in MBS during his time at TCW
What does Gundlach use the copper-to-gold price ratio to gauge?
He sees the direction of this ratio and the 10-year yield as usually moving together, but in 2022–2024 the two lines diverged
Why do MBS prices usually rise less than government bonds when rates fall sharply?
Principal is repaid faster when rates fall, so MBS holders gain less from price than they otherwise would. This is called negative convexity
In the 2011 case against TCW, how much deferred compensation did the jury award Gundlach?
$66.7 million, before the two sides settled in December 2011
0/5
09
Read across marketsWatch rates, gold and currencies together
What you can apply from Gundlach is watching several markets at once, knowing that position risk is asymmetric, and always checking your own predictions.
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10
Further readingFurther reading
- Liar’s PokerMichael Lewis · 1989Stories from Salomon Brothers’ bond trading floor in the era when the MBS market was born, giving a picture of the market where Gundlach made his name. Not a book about him
- The Handbook of Mortgage-Backed SecuritiesFrank J. Fabozzi (editor) · 2016A reference text on MBS, prepayment and negative convexity, for anyone who wants an in-depth understanding of the instruments Gundlach specialises in
Sources for this article
- Wikipedia: Jeffrey Gundlach
- Wikipedia: DoubleLine Capital
- Yahoo Finance: Inside story of DoubleLine Capital’s first decade
- CNBC: How Bond God Jeff Gundlach Got Into Finance (2011)
- Institutional Investor: TCW’s Gundlach Bets the House in Bond Fund
- Morningstar: Fund Manager of the Year winners
- CVN: TCW v. Gundlach Trial Results in Split Verdict (2011)
- PlanSponsor: TCW Group and Gundlach Reach Settlement (2011)
- Bloomberg: TCW’s Stern Says He Fired Gundlach Because Firm Was Threatened (2011)
- Forbes: Glory To The New Bond King (2014)
- Advisor Perspectives: How Gundlach Predicted Trump’s Victory (2016)
- CNBC: Gundlach on a 3% 10-year yield (2018)
- The Globe and Mail: Gundlach sees 6% yield in 3 years (2018)
- Kitco: Gundlach indicator, copper-gold and yields (2019)
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FAQFrequently asked questions
Who is Jeffrey Gundlach?
Founder and CEO of DoubleLine Capital, a US fixed-income asset manager specialising in mortgage-backed securities (MBS). Barron’s called him the King of Bonds in 2011
Why was Gundlach fired from TCW?
TCW fired him in December 2009 amid disputes over power and pay, not because of performance; his fund was near the top of its category. The two sides sued each other and settled in 2011
What is the copper/gold ratio?
The price of copper divided by the price of gold. Copper reflects demand in the economy; gold reflects fear. A rising ratio usually means a busy economy and rates likely to rise. Gundlach uses it to gauge the direction of the 10-year yield, but the relationship doesn’t hold in every period
What is the negative convexity of MBS?
When rates fall, homeowners refinance and repay early, so MBS prices can only rise so far. When rates rise, people repay more slowly, the life of the MBS extends, and prices fall more than expected. Holders earn higher interest to compensate for this risk
How can Forex and gold traders use his ideas?
Follow US bond yields because they move the dollar and gold directly, use cross-market indicators as supporting information while always rechecking that the relationship still holds, and keep a record of the reasoning behind every trade to check later
Educational content, not investment advice. Asset and performance figures are publicly reported figures. The labs use approximate annual averages and simple models. · risk disclosure · Forex glossary