Oil fall could lead to capex collapse: DoubleLine's Gundlach

Tue Jan 13, 2015 6:29pm EST
 
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By Jennifer Ablan

NEW YORK (Reuters) - DoubleLine Capital's Jeffrey Gundlach said on Tuesday there is a possibility of a "true collapse" in U.S. capital expenditures and hiring if the price of oil stays at its current level.

Gundlach, who correctly predicted government bond yields would plunge in 2014, said on his annual outlook webcast that 35 percent of Standard & Poor's capital expenditures comes from the energy sector and if oil remains around the $45-plus level or drops further, growth in capital expenditures could likely "fall to zero."

Gundlach, the co-founder of Los Angeles-based DoubleLine, which oversees $64 billion in assets, noted that "all of the job growth in the (economic) recovery can be attributed to the shale renaissance." He added that if low oil prices remain, the U.S. could see a wave of bankruptcies from some leveraged energy companies.

Brent crude LCOc1 approached a near six-year low on Tuesday as the United Arab Emirates defended OPEC's decision not to cut output and traders wondered when a six-month price rout might end.

Brent has fallen as low as just above $45 a barrel, near a six-year low, having averaged $110 between 2011 and 2013.

Gundlach said oil prices have to stop going down so "don't be bottom-fishing in oil" stocks and bonds. "There is no hurry here."

Energy bonds, for example, have been beaten up and appear attractive on a risk-reward basis, but investors need to hedge them by purchasing "a lot, lot of long-term Treasuries. I'm in no hurry to do it."

High-yield junk bonds have also been under severe selling pressure. Gundlach said his firm bought some junk in November but warned that investors need to "go slow" and pointed out "we are still underweight."   Continued...

 
Jeffrey Gundlach, chief executive and chief investment officer of DoubleLine Capital, speaks at the Sohn Investment Conference in New York, May 5, 2014.  REUTERS/Eduardo Munoz