The "bond king" has named the cause of the next crisis. What does he advise to invest in?

The market has reached the stage of mania, says Jeffrey Gundlach, founder of DoubleLine Capital, an investor. Of particular concern is the situation in the private credit market, which he says could cause the next major financial crisis. What assets does he advise investors to protect their capital?

Experienced debt investor Jeffrey Gundlach, known on Wall Street as the "Bond King," foresees a possible market crash looming because of risky private lending and inflated hopes for artificial intelligence, Bloomberg writes.

"The state of the stock market in the U.S. is one of the least healthy of my career. The market is incredibly speculative, and speculative markets always reach crazy highs. It happens every time," Gundlach said on an edition of Bloomberg's Odd Lots podcast.

Gundlach sees overvalued assets almost everywhere he looks. He pointed to overvaluations in the stock market and warned investors against "incredibly speculative" trades. In his view, the most obvious signs of speculative behavior are seen in bets on AI and data centers.

"During periods of Ma, you have to be very careful with momentum-based strategy - and I think we're in just such a period right now," Gundlach said.

He also believes the $1.7 trillion private credit market has gotten carried away with "junk lending" that could be the trigger for the next global collapse. Gundlach drew parallels to the "inflated" AAA ratings on subprime mortgages on the eve of the financial crisis and warned that private money managers may be unrealistically estimating the value of their loans.

"The next major crisis in the financial markets will involve private credit. It has the same hallmarks as the subprime mortgage repackaging of 2006," he said.

The collapse of auto lender Tricolor Holdings and auto parts supplier First Brands Group in September adds urgency to what Gundlach has been saying for years, Bloomberg notes. After the bankruptcies of Tricolor and First Brands, Jamie Dimon, head of JPMorgan, the largest bank in the U.S., warned that the market should be wary: "When you see one cockroach, there are probably more.

Gundlach doesn't see an easy way to invest, based on his view that the private credit market is a powder keg ready to explode. He is not, for example, going to short high-yield bonds - a trade he says "makes losses all the time." His strategy is simple: build up cachet and stay out of private credit.

The founder of DoubleLine Capital recommends keeping 20% of your portfolio in cash to hedge against a potential market crash.

Even for gold - his No. 1 trade earlier this year - Gundlach now suggests allocating 15% of a portfolio to it after the metal's meteoric rise (he previously recommended 25%). He calls gold a diversification tool that should be part of a standard set of assets. But overall, he warns that investors have few really good options right now.

"Financial assets in general should take a smaller share of portfolios than usual," Gundlach said. - The problems in financial markets always start when people buy what they think is safe. It's sold to them as something safe, but it really isn't."

This article was AI-translated and verified by a human editor