“It’s certainly behaving differently than it was for the last four decades,” Jeffrey Gundlach said at the Bloomberg Global Credit Forum. “Things are behaving differently.”
He wasn’t just talking about the S&P 500. “Usually when the Fed starts cutting interest rates… the 10-year Treasury almost always goes up immediately… This time the 10-year yield went up and the yield curve is steepening.”
Why? “The interest expense for the United States is untenable if we continue running a $2.1T budget deficit and we continue to have sticky interest rates.” He broke it down: “The average coupon on Treasuries was below 2%… now it is pushing 4%. As long as bonds are maturing… they were issued with coupons of a quarter percent and now it is four and a quarter percent—400 basis points higher.”
The long bond? “It’s not a legitimate flight to quality asset… gold is suddenly the flight to quality asset… I think Costco is selling gold retail and they can’t keep it in stock.”
He’s not just holding gold. “I’ve owned gold since it was $300… I think gold is a real asset class. It’s no longer for lunatic survivalists and wild speculators.”
What about equities? “The valuation of the S&P 500 is incredibly uninteresting… it’s more overvalued today… the forward PE is higher than the all-time high back in February or early March.” Gundlach compared the current environment to “1999” and “2006 and 2007,” adding, “One of the hardest things to do in the investment business is to learn and fully appreciate how long everything takes to happen, it takes forever.”
As for AI? “AI was embraced with great enthusiasm… but the enthusiasm becomes very excessive… It’s a momentum trade… when the momentum is broken… it turns into a sellers market.”
And he’s skeptical of the private credit boom: “Private credit today is analogous to the CDO market in the mid part of the 00s… there’s a lot of phraseology that reminded me of CDO panels in 2006, 2007.” He added, “If you have a cockroach in the kitchen it’s never one cockroach. It’s always systemic.”
His strategy? “We are just protecting and waiting for better opportunities… Markets take the stairs up and the elevator down… A real break is bonds drop 30 points.”
And the long-term bet? “You should invest in India… Do yourself a favor and don’t open the statement… hold it for your grandchildren’s college fund.”
In Gundlach’s eyes, the storm is forming—but the time to position for the next cycle is already here.
You can watch the entire interview here:
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