Gundlach recognizes one of the “unhealthiest” stock markets of his career

Wall Street veteran Jeffrey Gundlach said many assets are now extremely expensive and urged investors to keep about 20% of their portfolios in cash in case of a major downturn.

The CEO of DoubleLine Capital warned on Bloomberg’s “Odd Lots” podcast on Monday that the stock market has become dangerously speculative, calling it one of the healthiest markets he’s seen in his career. The Dartmouth College graduate, who began his Wall Street career at TCW Group in the mid-1980s, has now seen over-speculation in AI stocks and data center investments, and warns that boom-time momentum investing can end badly.

Gundlach said he was particularly concerned about the rapid growth of the $1.7 trillion private credit market, which lends directly to businesses. He said financial institutions were making “garbage loans” similar to those that occurred before the 2008 mortgage crisis, and pointed to recent bankruptcies such as auto finance company Tricolor and auto parts supplier First Brands Group as early red flags.

“The next big crisis in financial markets is private credit,” he said. “The same trap that was used in the repackaging of subprime loans in 2006 is being set.”

Gundlach also criticized efforts to sell private credit funds to individual investors, calling them a “total mismatch” that promises easy withdrawals despite the fact that these assets usually cannot be sold quickly. He said if investors withdraw their money, the fund could be forced to sell at a significant loss.

Despite the caveats, Gundlach acknowledges that it is difficult to profit directly from this view. He said he wouldn’t short sell junk bonds, for example, because he’s been losing money on the trades.

He said he still likes gold, but has reduced his recommended allocation to 15%. Gundlach had recommended a 25% gold position in mid-September, based on his belief that inflation would remain stubbornly high due to the impact of tariffs on import prices.