Jeff Gundlach’s top trade right now

From Justin Brill, Editor, Stansberry Digest:

Steve Sjuggerud’s emerging markets call is in great company…

As we mentioned last week, Steve originally turned bullish on these stocks back in February.

At the time, he noted emerging markets had essentially gone nowhere since 2010 and had massively underperformed U.S. stocks for four straight years. History suggested a big rally was likely. As Steve wrote in the February issue of True Wealth Systems

The last time emerging markets underperformed the U.S. market for four straight years was 1995-1998. You can guess what happened next… The MSCI Emerging Markets Index soared 64% in 1999. It went on to outperform the U.S. market for 10 of the next 12 years. It entered a bull market that led to 400%-plus gains.

But Steve isn’t alone…

Last week at the annual Sohn Investment Conference in New York, “Bond God” Jeffrey Gundlach said he, too, expects emerging markets stocks to outperform going forward.

He recommended going long emerging markets via the iShares MSCI Emerging Markets Fund (EEM), while shorting the S&P 500 via the SPDR S&P 500 Fund (SPY), as his favorite trade right now.

To be clear, Gundlach is NOT betting that U.S. stocks will fall…

Instead, like Steve, he’s simply betting that emerging markets will play “catch-up” after lagging the U.S. so long. As he explained in an interview with financial-news network CNBC following his presentation last week…

The valuation of emerging markets is half the valuation of the S&P 500, when you look at things like price to sales, price to book…

I use [emerging markets], you could use Europe as well… I just think EEM has more potential upside than even Europe.

If you look at market share of global stock markets, the U.S. is over 50% of global stock markets, but it’s under 25% of GDP. So there’s just something wrong with this picture

Gundlach is best-known for his credit-market calls…

But few analysts have nailed as many big-picture predictions as he has in the past couple years…

Gundlach was one of the few analysts anywhere to predict Trump’s victory last November. He also called the top in U.S. Treasury bonds – and the bottom in interest rates – when virtually everyone was bullish on bonds last summer.

Of note, his favorite trade at last year’s conference – another pairs trade, going long a mortgage REIT fund and shorting a utilities sector fund – returned 40% over the past 12 months.

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