The dollar's surge to multi-year highs against a range of currencies in recent weeks may be wreaking havoc on U.S. corporate earnings, but the move shows no signs of petering out, says Jeffrey Gundlach, CEO of DoubleLine.
The greenback hit a 12-year high against the euro Wednesday and a seven-year high against the yen Tuesday. "Everybody's bullish on the dollar now,"
Gundlach says in a webcast obtained by CNBC. "Currency trends go on for a very long time."
Gundlach recommends that long-term investors stay out of euros now, as he is doing. The euro traded at $1.06 Wednesday morning, after touching $1.0560 earlier in the day.
When it comes to Federal Reserve policy, Gundlach doesn't believe the central bank will raise interest rates if deflationary pressure persists. Consumer prices slid 0.1 percent in the 12 months through January. "I think that inflation is not a problem," he notes.
On the commodity front, negative bond yields will likely push gold up to $1,400 an ounce this year, Gundlach predicts, while oil will fall.
"I still think oil is going to see a minor new low. I really don't believe oil is going to start rallying."
Why are investors willing to hold bonds with negative yields? "The most likely is the simplest: the bond buyers actually expect a positive yield thanks to currency appreciation," he says.
The way that would work for a U.S. investor would be for the euro to rise against the dollar. That way when a U.S. investor sells or redeems a euro-denominated bond, the euros would be worth more in dollars.
"Given that the European Central Bank is about to start its own version of quantitative easing and that the dollar has been strengthening against the euro, it might seem counterintuitive for investors to be counting on the euro strengthening versus the dollar," Dorfman notes.
"However, apparently the investors are convinced that the Fed will eventually succeed in its quest to create inflation (while also believing that Germany will not allow the ECB to create much inflation in Europe)."
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