Jeffrey Gundlach and Felix Zulauf: The Second Inning of a Major Shift

DoubleLine CEO-CIO Jeffrey Gundlach joins Felix Zulauf of Zulauf Asset Management for a wide-ranging macroeconomic conversation moderated by Grant Williams. Both agree on the big picture: The world is transitioning from a unipolar to multipolar order, and wars and sanctions are structurally inflationary. In addition, markets are in the late stage of a capex and AI-driven up cycle that Mr. Zulauf believes could top out between the third quarter of this year and the first quarter of next year – followed by a recession-driven bear market of 30% to 50%. Mr. Gundlach concurs, adding that the AI concentration in U.S. equities – 10 stocks representing 41% of the S&P 500 Index – maps almost exactly to the tops of previous market cycles, and that the U.S. has already begun underperforming the rest of the world in a trend he believes is only in the second inning.

On rates and the fiscal outlook, Mr. Gundlach argues that long-term U.S. Treasury yields will not decline meaningfully even in a recession, given that interest expense has exploded from $300 billion to nearly $1.4 trillion annually, and deficits continue to run at $2 trillion per year. He raises yield curve control and a potential Treasury debt restructuring as possible policy responses when the pain becomes acute, noting wryly that NEC Director Kevin Hassett’s dismissal of the restructuring idea sounds suspiciously like a Wall Street “never.” On private credit, Mr. Gundlach is unsparing, comparing the current environment to 2005 to 2006, with fabricated ratings; laundered volatility; obfuscated software exposure; and an incestuous web connecting private equity, private credit and offshore reinsurance with little transparency or regulatory oversight. Mr. Zulauf adds that some firms in private credit will disappear, and that the full reckoning will only come when the market turns and the tide goes out.