Mutual Fund Buzz for June 23: Morningstar Edition

Gundlach sounds the debt siren.

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Today's fund news from the Morningstar Investment Conference:

Deflation and debt—that was the message in the keynote kickoff to the Morningstar 2010 Investment Conference. Jeffrey Gundlach, the outspoken bond manager and head of DoubleLine Capital, warned investors that the "elephant in the kitchen," namely massive and rising U.S. deficits, will be a long and entrenched problem that will plague investors.

Things aren't as "imminently terrible" as they were in 2007, the last time he keynoted at Morningstar and delivered another bummer of a speech warning, correctly, about trouble in the housing market. But all this talk of inflation? Forget it (for now). The money supply is contracting, stocks are down, the CPI is down, home prices are down.

So what do you buy as U.S. debts threaten the foundations of the U.S. economy? Well, long-term U.S. debt, at least for the short to medium term. Why? Gundlach says in part because the debt crisis in the rest of the world (think Greece) is still facing lots of fiscal turmoil. "I don't believe the Greek crisis, the Greek tragedy, is in its final act."

That little tip shouldn't be comforting. The problem (and Gundlach thinks it could become a reality absent unprecedented policy intervention from Washington) is that the world's investors could sour on U.S. debt. If that happens, "sell immediately, because you don't have much time." He's talking months, not years, and says his shop is watching that scenario closely.

No real mention of the ongoing legal battle that currently follows his ugly firing by TCW, save a nod to John Bogle's quote about being "fired with enthusiasm" (Gundlach said he could relate). But he was quick to point to stellar growth in his funds, which topped $1 billion after launching in early April.

For more on Gundlach's strategy and his TCW departure, see DoubleLine's Jeffrey Gundlach on Life After TCW from U.S. News.