Gundlach: Rates, Risk and the Road Ahead

DoubleLine CEO-CIO Jeffrey Gundlach, in conversation with Deputy CIO Jeffrey Sherman at the firm's September client event, argues that long-standing market relationships have stopped working, a condition he calls "backward land." He lays out a view that long-term rates rise during the next recession as deficits and interest expense grow, and expects more government intervention beginning with a larger Operation Twist. He also describes emerging cracks in credit and points to areas he considers safer.

1. Gundlach says many relationships investors relied on for decades have stopped working, a world he calls "backward land."
2. He argues long-term rates will rise in the next recession as the deficit moves toward 12% of GDP and interest expense toward $3 trillion a year.
3. He sees cracks in credit, with AI-related bonds widening well beyond the rest of the market and private credit marks raising questions.
4. He cites seasoned securitized credit and emerging markets local currency debt as areas of safer ground, and warns equity valuations and concentration leave little margin for error.