Hi. Aaron Weinman here. The “Bond King” has spoken! Jeffrey Gundlach, the managing director of DoubleLine Capital, is convinced that the recession is heading our way in 2023.
But all is not catastrophic. He likes the look of lower quality securities, especially those rated triple B. He also likes double B bonds, which are the highest echelon in the high-yield market.
These are companies, or sometimes countries, securities that yield significantly more than the highest-rated borrower like Google or Apple, but come with risk.
For Gundlach, the risk is worth it, especially with rising short-term interest rates. Borrowers living in triple or double B spaces will face more costly interest payments in the months ahead.
Insider’s Hayley Cuccinello listened to the outspoken billionaire at an event in Huntington Beach, Calif. Discover his story here.
And, happy Friday, dear readers. It’s time for the banker of the week!
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1. DoubleLine Capital’s Jeffrey Gundlach has a soft spot for bonds. Although he believes a recession is imminent, all is not bleak for the billionaire.
He shared his playbook for the bond market and thinks the sweet spot for double-digit growth for investors is between high-quality and low-quality markets.
Gundlach recommended buying securities rated double B (the highest level of lower quality) and triple B (the lowest level of quality).
He acknowledged that this strategy carries risks, but not enough to prevent him from gobbling up these stocks. He said the move could earn an investor up to 12% return.
This is helped by a rising interest rate environment. Borrower bond and loan repayments will only become more expensive for those with variable rate repayment schedules.
Gundlach spoke at the Future Proof Festival. Read the full story here.
In other news:
2. Adobe agreed to buy Figma for $20 billion. Investors believed Adobe overpaid for Figma and the company’s market value fell over $30 billion. Allen and Company advised Adobe, and Wachtell, Lipton, Rosen & Katz acted as legal counsel to the photoshop creator. The deal is also one of the biggest for a company-backed startup. Early investors like Greylock and Kleiner Perkins have everything to gain.
3. The Ethereum merger has finally arrived. The merger will move the Ethereum blockchain from a proof-of-work verification system to a proof-of-stake system. Fifteen crypto CEOs and founders share their thoughts on what this means for the digital asset space.
4. Apollo is tapping bond investors directly to fund mergers and acquisitions as banks reduce the risk of buyouts from private equity firms, Bloomberg reported. Barclays and Deutsche Bank are selling bonds for Apollo-backed Lottomatica where possible. This means they raise the funding from investors without taking on the debt. on their own balance sheets.
5. Coming soon to Walmart: checking accounts. The world’s largest retailer is set to launch digital bank accounts for its employees and customers, according to Bloomberg.
6. Student loan startup CommonBond is quietly ending its operations. The pause in interest and payments due to the pandemic has massively affected its core refinancing business.
7. NextEra Energy sold $2 billion worth of stock to Citi, Goldman Sachs and Mizuho. The deal, priced at $50 a unit, is one of the largest deals in equity markets in recent months, where deal flow has slowed to a trickle.
8. Companies like Zoom and Roku are giving away more shares to woo talent, but that could dilute existing shareholders. Insider has compiled a chart that highlights some tech companies with the most expensive stock compensation.
9. The ultra-rich are taking the concept of remote working to the next level. Demand for private islands has exploded since the start of the pandemic. Here are four private islands for sale in the Bahamas.
10. And here is our Friday banker of the week. Meet Graham Weaver, Founder and CEO of Alpine Investors, a private equity firm focused on software and services companies.
Weaver pitched the idea for Alpine in a Stanford Business School dorm in 2001. He started by borrowing with his credit card to invest in businesses. Today, the company manages $8 billion in assets.
Check out the full story, and Weaver’s love for blogging and TikTok, here.