The Breakdown

Explaining Southern California's economy

DoubleLine Capital's Jeff Gundlach says housing recovery has a ways to go (Chart)

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DoubleLine Capital's Jeff Gundlach presented his 2013 market outlook on Tuesday. DoubleLine, based in Los Angeles, is a fast-growing financial start-up. It has amassed more than $50 billion in assets under management (AUM) since CEO Gundlach left rival TCW — also L.A. based — in 2009, under controversial and eventually litigious circumstances. 

With Newport Beach based PIMCO, DoubleLine and TCW form what I call a Southern California "bond triangle" — together the trio manages more than $2 trillion, dealing mostly with fixed-income investments (although PIMCO and DoubleLine have been edging toward equities as a greater portion of their portfolios).

Add in Pasadena-based WAMCO, with $450 billion under management, and you have a constellation of bond funds with portfolios that surpass the annual economic output of the entire state of California, which is about $2 trillion.

At DoubleLine, Gundlach has made a name for himself as a "young wise man," a successor to PIMCO's Mohamed El-Erian — who spends a fair amount of time presenting his views on the state of markets and the global economy on his company's website, in the major financial broadcast media, at venues like the World Economic Forum in Davos, and on op-ed pages — and PIMCO's Bill Gross, a CNBC regular.

TCW's representatives are out there as well, with frequent Bloomberg TV appearances. A recent Wall Street Journal article characterized their core team as "low glitz," versus Gundlach or PIMCO's co-Chief Investment Officers, El-Erian and Gross. Regardless of whether you accept that verdict, the point to be discerned here is obvious: You need to do more than simply manage money — you need to show investors that you can paint the Big Picture.

On that front, Gundlach has a formidable talent for assembling presentations that can capture a host of market and economic trends under a compelling rubric. He gives good macro.

For 2013, he's predicting — with a certain Chinese astrological aplomb — a "Year of Snake." 2013 is the Year of the Water Snake, and for Gundlach that means this year will be all about critical market insights.

You could call that glitzy, but sifting through the presentation's 66 slides (which you can do here at Business Insider), you get a very sober, data-driven analysis of threats and opportunities. 

My favorite slide shows Case-Shiller index home price date for selected cities. You can see that there's a moderate recovery afoot in a number of metro areas, with momentum really picking up in Phoenix, one of the worst-hit cities during the downturn.

But look at the contrast between percentage declines from the market peak and the percentage increases from last year. You've got double digits in every city in the slide except Dallas and Denver — and in several cases, deep double digits. 

Los Angeles is a grim example — a 33.8 percent decline from the peak, with a 6.2 price increase since last year, when the Case-Shiller index began signaling a modest housing price recovery. Gundlach is cautious about where this is headed, joining no less an authority than...Robert Shiller himself, the Yale economist who helped create the Case-Shiller index.

The chart tells the tale, particularly if you're thinking about buying a house in Southern California. There's still a lot of risk in the market, where low inventory and low interest rates —  along with a lot of cash investors buying up properties — have created a bit of a price bubble.

Gundlach is stressing — in young wise man macro-investor fashion — what the California Association of Realtors' chief economist, Leslie Appleton-Young, said last October with far less global focus: the California real estate market is as strange as it's ever been. And that's not necessarily a place you want to be in the Year of the Snake.

Follow Matthew DeBord and the DeBord Report on Twitter. And ask Matt questions at Quora.

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