Although 2008 was a brutal year for many segments of the fixed-income markets, to bond managers Jeffrey Gundlach, who runs TCW Total Return Bond TGLMX, and Bob Rodriguez, who runs FPA New Income FPNIX (both Morningstar Fund Analyst Picks), it was a chance to shine. Both managers have long maintained among the most sober of assessments of the credit markets, and their caution at their own funds redounded to their advantage last year.
Gundlach, who won Morningstar's Fixed-Income Manager of the Year honors in 2006, is the chief investment officer at TCW and works with comanager Philip Barach at Total Return. Rodriguez serves as chief executive officer at FPA and is aided by Tom Atteberry at the New Income fund. Rodriguez and Atteberry took Morningstar's Fixed-Income Manager of the Year honors in 2008. Rodriguez was also honored in 1994 and 2001.
From Chicago, we invited the pair to participate in a conversation, via conference call, about the state of the fixed-income markets and the economy. On Feb. 17, Gundlach called from his offices in Los Angeles and Rodriguez from his home in Lake Tahoe, Nev. Morningstar fixed-income specialist Eric Jacobson also participated in the call. The discussion has been edited for clarity and length.
Lawrence Jones: You both were prescient in your analysis of the troubles that were coming down the line over the past couple of years. What's your view of the situation today?
Bob Rodriguez: I'm still very much depressed about what I see going on in our economic environment and, in particular, the responses by the Federal Reserve, Treasury, and the most recent stimulus plan. I'm working with the assumption that the stimulus plan will have minimal impact upon the U.S. economy in this year and next. It would not surprise me to see them have to do another plan.
As such, the optimism that occurred toward the end of last year, be it in the equity market with the rally or in the high-yield market and some other areas, was premature. It was predicated upon a second-half economic recovery and earnings recovery, neither of which will occur. This, then, sets the stage for considerable disappointment in 2009 going into 2010.Finally, the pandemic breakdown in underwriting standards is still unfolding. The next area that will hit will be in the commercial real estate market, beginning right now, throughout this year, and into next year.
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