Jeffrey Gundlach on Bloomberg Podcast Interview
Warns of Stock Market Bubble
"Incredibly Speculative"
Jeffrey Gundlach, CEO of DoubleLine Capital and known as the "Bond King," has warned that the next major financial crisis could originate from the private credit market, which is estimated to be worth about 2,500 trillion won. As the private credit market-where non-bank financial institutions lend directly to companies-has grown rapidly, a series of recent defaults have come to light, raising concerns that a financial crisis similar to that of 2008 could recur. Gundlach also stated that asset prices in the current financial markets are excessively overvalued and recommended holding 20% of investment portfolios in cash.
On November 17 (local time), Gundlach appeared on Bloomberg's "Odd Lots" podcast and pointed out that lenders in the private credit market are "churning out garbage loans."
He cited the recent bankruptcies of subprime auto lender Tricolor and auto parts company First Brands, both of which raised funds through private credit, and argued, "The next major crisis in financial markets will be private credit." He also assessed the current situation as "resembling the repackaging of subprime mortgages in 2006."
Subprime mortgage bonds were identified as the direct cause of the 2008 financial crisis. At that time, credit rating agencies assigned top ratings to senior bonds backed by subprime mortgages, but financial institutions that purchased these securities ended up shouldering massive losses. Tricolor, one of the bankrupt companies Gundlach mentioned, used private credit to provide high-interest auto loans to low-credit borrowers and obtained multiple loans from various financial institutions using the same collateral. First Brands is suspected of securing multiple private loans by offering accounts receivable from parts sales as duplicate collateral.
The U.S. private credit market has grown rapidly since the financial crisis, as large banks tightened lending standards and non-bank financial institutions stepped in to provide funding. Despite high interest rates, the speed and flexibility of funding have made private credit attractive to companies, leading to rapid market expansion. The size of the U.S. private credit market is now estimated at approximately $1.7 trillion (about 2,490 trillion won), and as defaults continue to emerge, concerns are mounting that a "megaton-level" shock similar to the 2008 global financial crisis could reoccur.
Gundlach also strongly criticized recent moves to sell private credit funds to retail investors. He argued that promising easy redemption of these assets is "a perfect mismatch," since it is difficult to secure liquidity through quick sales. He warned that if redemptions are concentrated, funds may be forced to sell assets at fire-sale prices, greatly amplifying losses. He added, "There are only two prices in private credit: 100 and 0. It may look safe because you can sell at any time, but that's not true. The price at which you can sell keeps falling every day."
Concerns about defaults in the private credit market are spreading across Wall Street. Previously, Jamie Dimon, Chairman of JPMorgan and known as the "Emperor of Wall Street," also warned about the private credit issue, saying, "If you see one cockroach, there are probably more," indicating that widespread problems could exist throughout the market.
Gundlach also expressed concern about overheating in the broader financial markets, including the recent artificial intelligence (AI) investment bubble.
"The health of the U.S. stock market is the most fragile I have seen in my entire career," he said. "The market is unbelievably speculative, and this kind of speculative environment keeps reaching astonishing heights. This happens every time."
Regarding gold investment, he previously advised increasing the portfolio allocation to as much as 25% in mid-September due to concerns about tariff-driven inflation, but recently revealed that he has reduced this to 15%.
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