‘Bond King’ Jeffrey Gundlach warns of the next financial crisis: ‘It has the same trappings as subprime mortgage repackaging in 2006’

Investment Strategy - Investors are advised to allocate a maximum of 40% in equities (largely non-U.S.) and 25% in fixed income, favoring short-term Treasuries and non-dollar fixed income, with the remainder in cash and real assets like gold [1] Private Credit Concerns - The private credit market is highlighted as a potential crisis area, with Gundlach comparing it to the subprime mortgage crisis of 2006, indicating severe underlying issues [5] - Private assets are noted to have only two prices: 100 or zero, illustrated by the bankruptcy of Renovo, which had liabilities between $100 million and $500 million but assets listed as less than $50,000 [2] - Gundlach argues that the perceived stability of private credit returns is an illusion, as firms often fail to accurately mark assets to market, leading to underreported volatility [3] Market Dynamics - The private credit sector has grown significantly, estimated at $22 trillion by late 2024, more than doubling since 2012, while the number of public companies has halved [8] - The S&P 500 is highly concentrated, with 40% of its market cap in just 10 companies, raising concerns about the stability of equity markets if the AI narrative turns negative [8] National Debt and Economic Outlook - Gundlach warns of a mathematical impossibility regarding U.S. national debt and interest expenses, predicting that by 2030, 60% of tax receipts could be allocated to interest expense under current policies [12] - The current official deficit is approximately 6% of GDP, with interest expenses consuming about 30% of federal tax receipts, a figure expected to rise as new debt is issued at higher rates [12] - A pessimistic scenario suggests that if Treasury rates hit 9% and the deficit reaches 12% of GDP, tax receipts could be entirely consumed by interest expenses, necessitating a radical change in the economic rule system [13]