Bond king Jeff Gundlach says Warren Buffett's ditching of US airline stocks is a 'big deal' and means the 'genie is not going back in the bottle'

• The billionaire bond investor Jeffrey Gundlach said Warren Buffett's ditching his entire stakes in US airlines corroborates the "economic genie is not going back in the bottle" thesis.
• In a tweet Sunday, Gundlach said the airline bail is "a big deal" and related it to Buffett's doubling down on bank stocks during the financial crisis.
• A genie not going back into the bottle refers to the idea that once something has changed fundamentally it cannot change back.
• Airlines have traditionally been seen as solid, reliable investments, but the coronavirus could change that forever.
• At Berkshire Hathaway's annual general meeting on Saturday, Buffett revealed that he had sold the "big four" airline stocks in April.
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Famed investor Warren Buffett sold all of his stocks in the "big four" US airlines in April.

Following this, Jeffrey Gundlach on Sunday identified Buffett's move by linking it to the "economic genie is not going back in the bottle" thesis.

Gundlach tweeted Sunday night saying:

"Warren Buffet selling all of his airline stocks corroborates the "economic genie is not going back in the bottle" thesis. In late summer 2007 Warren doubled down on bank stocks (a bad call with hindsight benefit). So this airline bail now is a big deal."

While Gundlach did not expand on what he meant by the theory, it is possible that he referred to the problem of volatility that an "economic genie" represents.

A genie not going back into the bottle refers to the idea that once something has changed fundamentally it cannot change back.

In this case, the genie likely characterises pension funds and institutional investors who seek to protect the interests of millions of ordinary people, and therefore steer clear from investments that suddenly seem too risky.

Airlines have traditionally been seen as solid investments, with steady dividends and good stock performance, but the coronavirus pandemic could change that forever, an argument furthered by Buffett's withdrawal from the stocks.

The genie could also be associated with hedge funds and insider traders who bet that particular stocks will be losers and welcome the volatility, knowing it increases opportunities for smart predation.

On letting go of his airline stakes, Buffett said the companies are well-managed and the CEOs "did a lot of things right but the airline business ... changed in a very major way."

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Gundlach also said the airline bail "now is a big deal," while relating the scenario to Buffett's doubling down on bank stocks during the financial crisis.

The Berkshire Hathaway boss handed billions in bailouts to Goldman Sachs and General Electric in 2008, and Bank of America in 2011, in return for warrants that allowed him to buy their shares at a fixed price in the future. Buffett exercised those warrants years later, raking in big profits.

At Berkshire's annual general meet on Saturday, Buffett discouraged people from selling stocks purely because their prices change.

"If you owned the businesses you liked prior to the virus arriving, it changed prices, but nobody's forcing you to sell," he said at the meeting.

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