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

People haven't fully grasped the magnitude of the structural problem yet and still hold onto hope in the system; the next trigger will force them to confront this. Examples: France's 2023 pension reform (raising retirement age by a year) caused massive social unrest, showing how little tolerance exists for austerity.

“people don't want to give up hope yet. They want to believe that the system that they've relied upon and and have have come to believe is i- i- immutable. That They have to come to realize that it's not sustainable. Remember in in France a couple years ago? Didn't Didn't they like talk about decreasing uh a benefits age by like a year or something?”

Consumer sentiment is at all-time lows across all income brackets, with the top third less optimistic than any time in survey history, indicating a universal social mood of something not going right.

“the top third income bracket is a little bit more optimistic, but they're they're way less optimistic than they've been at any time uh in the in the in the survey. And also, the lowest third, not surprisingly, is at the all-time low. Which suggests that everybody's at the all-time low or near the all-time low. Which just just suggests that there's a social mood of uh you know, something's not going right”

The dollar could initially strengthen if Europe enters a direct military conflict in the Ukraine war, as capital would flow from Europe to the US as a perceived safe haven, but this perception of US safety will not last.

“the dollar could go higher first for a while, but that depends on whether Europe enters the war for real or not. I mean, they are playing with fire. Uh the Russians are losing patience with the Europeans, and it is conceivable that um uh the war activity could it be extended into European NATO countries by just launching missiles and drones. Uh and it would start with the Baltic Republics, uh etc. I do not see how the Europeans could win that and I do not believe that the US will come for rescue on Article 5 because they will not risk New York City for the Baltic states. Say, you know, in a in an easy way to say. And and if that is the case and the Europe gets more involved, it could lead to capital flows from Europe into the US so that is still up to this point perceived as a safe safe haven. I agree that it will not remain safe haven.”

Europe is playing with fire by its aggressive rhetoric against Russia regarding Ukraine; Russia is losing patience and could extend war activity into European NATO countries (Baltic Republics) via missiles and drones, which the US will not defend due to nuclear risk to NYC.

“Europe would be at war if it could, but Europe has no military to go in to go to war. It's just a rhetoric that the states the leaders the political leaders are using in Europe is just ridiculously aggressive against Europe. The Russians are losing patience with the Europeans, and it is conceivable that um uh the war activity could it be extended into European NATO countries by just launching missiles and drones. Uh and it would start with the Baltic Republics, uh etc. I I do not see how the Europeans could win that and I do not believe that the US will come for rescue on Article 5 because they will not risk New York City for the Baltic states”

Faced with overvalued bonds, equities, and cash, investors were forced to chase blind-pool SPACs and private equity investments with instructions not to disclose their holdings, because disclosure would reveal unmappable risk and investors would refuse them.

“What ended up happening at the end of 2021 is people said, 'I don't want stocks. I don't want bonds. I don't want cash cuz it's at zero. So, what do I want?' And they're sort of like, 'I'll tell you what. You've been coming to me, Mr. Salesperson, with this blind pool concept for a while. And you know what? I'm actually kind of listening to you now because I'll give you money for this SPAC or this private thing, but under only one condition. Don't tell me what you're doing. Because if you tell me what you're doing, there's a chance I'll be able to map over and I won't like what you're doing, either.'”

Sovereign wealth funds from Asia have recently shifted from buying US Treasuries to buying AI stocks, which means when the market turns, they will sell equities rather than hold them as safe assets, accelerating dollar selling.

“the sovereign wealth funds, particularly from Asia, have recently bought a lot of dollar assets and in the old days, they bought US Treasuries. In this cycle or in the last 12 months, they bought into AI stocks, the AI theme. And as they do that, it means that when the market turns, they will sell. So, not like Treasuries that benefit from a recession and they keep the dollars, they will sell the dollars this time. So, this will add to the selling of dollars and the weakness of dollars”

When the dollar declines, emerging markets will face economic problems because they are export-dependent on the US and other major economies, and stronger emerging market currencies will reduce their export competitiveness, while global recession will also reduce demand.

“when the dollar goes down, emerging markets will have a problem economically. Uh because emerging markets are selling to the US and uh other um um uh major economies. And when their currency goes up dramatically, then it means that they cannot sell as much, and the recession will reduce demand, etc.”

Gold is likely to continue rising as real money and as countries seek to store savings within their own borders rather than in foreign currencies they can no longer trust, driven by central bank buying and geopolitical fragmentation.

“gold will continue to be embraced as real money increasingly as we move forward. Uh central banks clearly have been buyers of gold. Uh another thing another indicator We used We We created an indicator... but I think gold will continue to be embraced as real money increasingly as we move forward.”

Systems put in place 80 years ago (Social Security, entitlements) are no longer working and will require drastic restructuring, exemplifying a broader failure of old frameworks that were built for different economic and demographic conditions.

“All these systems that were put in place 80 years ago that aren't working anymore.”

Unlike 2007-2008 (when daily ABX index data was available), private credit disclosure is opaque and infrequent, making it impossible to see deterioration in real-time, so the crisis will arrive suddenly when it becomes undeniable.

“But, unlike 2007, where we had data points every minute of every day because we had the ABX triple B index that started fall like like like a brick, here we only get when they feel like reporting. And that that there's no requirement that they actually do it.”

Jeff has been suspicious of private investments for a long time because they misrepresent volatility and risk through non-transparent marking, making Sharpe ratios and drawdown metrics invalid for comparison to public markets.

“Yeah, I've I've always been suspicious of private things because they they they're laundering their volatility. You know, they're they're not really reporting the volatility. So, you you got a sharp ratio arguments. You get, you know, drawdown arguments that aren't really valid.”

Data center expansion is creating major social and environmental problems including electricity price inflation, water shortages (inability to create new snowpack), pollution, noise, and lights, generating increasing political pushback that will make projects more expensive and delayed.

“And I think there are there are there are projects in Louisiana that are already slated and probably already approved that would use collectively more than all of the electricity in Louisiana. So, the pushback against this because the costs are enormous and it also has tremendous negative social impacts on water. There's you know, you might be able to improve your technology in the data centers over time. Obviously, you can't do it today, but you can do it over time. What you can't do is is create snowpack. That you can't do. And so, no no amount of money is going to create more snowpack. So, the water shortage is going to be substantial and it's also the pollution, the noise, the lights.”

The US may be forced to restructure Treasury debt by extending maturities and reducing coupons, as discussed in a white paper circulated in Q4 2024, which would be catastrophic for the long-term Treasury bond market and potentially prevent lending to the US for generations.

“there was a white paper uh discussing that, talking about doing it to foreigners that hold US Treasury debt. This is back in in the fourth quarter of 2024. And I don't even know if that's it's possible to do that, because I'm not I think foreigners can hide behind other entities. I think it's hard to know exactly who's a foreign holder. But it it just suggested literally that, extending the maturity and dropping the coupon. And obviously, that would be a disaster for the long-term Treasury bond market.”

Many indicators that worked well for decades in predicting 10-year Treasury yields have broken since 2020, including the copper-gold ratio, which now suggests the 10-year should be at 1% instead of current levels, indicating structural shifts in the relationship between commodities and rates.

“many indicators that worked well for decades in figuring out where Let's just say to keep it simple, a starting baseline where you might expect like the 10-year Treasury to be. One of the greatest indicators was the copper-gold ratio. And it works in very very well. It's probably the best single indicator in starting out where should the 10-year Treasury be, and it is completely broken since 2020. In fact, I I I quip at our strategy meetings, maybe we should use the gold-copper ratio. Okay, because it it the the the copper-gold ratio using it that way suggests that the 10-year Treasury should be at 1% right now.”

Interval funds advertised to retail investors via financial intermediaries created an illusion of liquidity (withdrawals allowed every quarter), but disclosure only noted the restriction applies at the fund level (5% per quarter), not the investor level, creating widespread misunderstanding and now forcing redemption gates.

“they created an illusion of liquidity on these interval funds that has completely fallen apart. I mean, as of December 31st, everyone I think a lot of people that bought these products through financial intermediaries, I think they were led to believe they'd get all their money out every quarter. They didn't they didn't focus on the fact that it's at the fund level, not at the investor level. So, it's only 5% and so suddenly people say, 'Wait a minute. I thought I could get out and I can't get out.'”

NAVs on major private credit funds are being marked down sequentially, with one of the largest funds marked down from 100 to 77, and when Jeff polled the room of sophisticated investors on whether the next NAV adjustment would be up, not a single hand went up—indicating universal awareness of further deterioration ahead.

“I'm seeing the marks being written down sequentially. You know, what the biggest private credit funds at year-end was marked at 100, today it's marked at 77. And I was giving a talk and I said and this was right after the the markdown to 77 and I said, 'Who in this room?' There's a lot of sophisticated people, a lot of people in there. I said, 'Who in this room, show of hands, who in this room thinks the next adjustment to the NAV is going to be up?' Of course, not a single hand went up. So, cuz everybody knows.”

Private investments accumulated from the end-2021 boom are now being marked down systematically, with absolutely no mark-ups despite the passage of 3-5 years, and many exhibits fraudulent or misleading accounting (pay-in-kind debt marked at par despite underlying equity being written down 98%).

“and now it's 3 to 5 years later, and we're seeing uh a lot of the private investments that were beneficiaries of that kind of being marked only one way. They're only marked down. Well, they're they're marked up if the the pick, which is completely absurd accounting, uh but they it's amazing that you've got a creditor that's not paying, and so you say, 'Okay, you don't have to pay me cash, we'll put it on the back of the loan.' And they keep the loan marked at par. I- I- In In there's one case that was actually reported last month where the the private equity interest underneath the pay-in-kind the bonds was pay-in-kind was wiped out. It was marked down 98% from about $100 million to $800,000 overnight, and they still marked the pay-in-kind bonds at par.”

Emerging markets have been outperforming the S&P 500 over the past year despite the S&P 500's momentum stocks and the 41% weight of the top 10 AI stocks, signaling a shift away from US dollar-based and cap-weighted US equity exposure.

“Emerging markets have been outperforming the S&P 500 in spite of the S&P 500 having a lot of momentum stocks in it and you know the concentration of 10 AI stocks being 41% of the of the S&P 500.”

AI capex as a percent of sales for hyperscalers has expanded from 10% to 30%, and semiconductor prices have risen 200-300%, creating a cost squeeze that will force hyperscalers to stop investing or raise capital, slowing the AI cycle.

“The capex as a percent of sales has gone from 10% to 30% as a percentage of sales. 30%. What you see now is the shortage of semiconductors is such that semiconductor prices that are used the memory chips and all that kind of stuff have gone up 200% 300% etc. So the costs they have to spend is going up more and more”

US Social Security Administration announced the trust fund will run out of money in 2032, down from projections of 2060, 2050, and 2040 in prior years; the actual depletion will occur before 2032 due to optimistic assumptions, likely around 2028-2029.

“the Social Security Administration just last week acknowledged you know, when I started in this business they said they were they were they were good until 2060. And then 10 years later it was good until 2050 and then few years later it was 2040 and then it was 2038 and now they say they're out of money in 2032. Now, 2032 is close enough, but since the date of of running out of money keeps rolling forward uh, because the assumptions are too optimistic, it means that it's before 2032. And I've I've been targeting somewhere in like 2029 maybe even 2028 that this has to be really front and center.”

Europe is in major decline, China is in secular rise but trapped in a long deflationary cycle, and the US is performing well due to easy money and a capex cycle driven by new technology, representing the late stage of a boom cycle.

“Europe is in major decline. China is in a secular rise but is in a long deflationary cycle and trapped in it. And the US is doing very well encouraged by easy money that we have seen for long and it's now dominated by the capex cycle by new technology”

Financial repression will intensify and expand with new forms and rules, with governments changing the rules mid-game, and the window for declining bond yields in recession will be much shorter than historically, with 10-year Treasuries likely declining only ~150 basis points for ~6 months before the repressions restart.

“we are entering the next phase of repression, and the repression will intensify, and the repression will bring new forms and new rules, and the government will change the rule in the midst of the game, you know. That's uh that is going to happen. We have to expect that. I'm not sure whether bond yields or interest rates cannot decline in a recession. Um I think the window that is open for declining bond yields will be much shorter. But I could easily see, let's say, uh 10-year Treasuries go from five and a quarter or so, where I see the high, approximately, uh uh to let's say, uh three and three quarters or something like that, 150 basis points. But, I do not believe it will decline for 12 months. It will probably for 6 months and so.”

The gold movement over the past cycle was primarily driven by China buying, and Western investors (particularly ETF investors) came in very late and missed most of the move or bought at the peak, while the secular bull market in gold is continuing.

“the gold movement was primarily dominated by China and China buying. And when you look at Chinese liquidity indicators, you see how the gold price went step in step with the liquidity indicators in China. And the westerners missed a big part of the move. Those who have been in them, they have been in them for a long time. Uh, like Jeffrey and myself. Uh, and those who played um, you know, from time to time in the Western world missed it a lot. Uh, you see the ETF investors came in very late and then went through the whole correction that we have just seen.”

The private equity and private credit boom of end-2021 has led to policy interventions where banks and insurance companies may be forced to buy more Treasury bonds and government bonds, and eventually central banks will have to take over many bank balance sheets to keep the system functioning.

“Perhaps the banks must buy more treasury bonds, government bonds, uh insurance companies, pension funds, etc. and things like that. And eventually, a lot of the debt will end up on the balance sheet of the central bank because eventually, the central banks have to take over a lot of banks. You know, to keep the system functioning.”

Private credit ratings are purchased from small, unknown rating agencies with ~30 employees (including receptionists) that rate hundreds of loans with 200-250 page documents each, with no genuine analysis—effectively functioning as a price list where higher ratings cost more.

“they're coming from sort of private small relatively unknown rating agencies, and we all know what that means. We know that you're not really getting a deep dive from an analyst. A lot of these firms have 30 employees, including the receptionist. And yet they're they're rating hundreds and hundreds of of of loans, each one with a 200 or 250 page document. So, I don't think they're really rating them. I think what they're doing is giving them a price list. You know, if if you want a a triple C rating it costs you a dollar. If you If you want a single B rating it's going to cost you $10 etc., and they somehow find their way to getting a a triple B minus rating on it.”

Japan could satisfy both China and the US by letting the yen rise, but this requires ending intervention and allowing market repricing, which would trigger repatriation of Japanese investors' overseas capital.

“They could please both by letting the yen rise, but for that they have to intervene. I expect uh a hike very soon and they should start hiking and trying to push the yen higher and once they the yen goes into a certain momentum situation, then all of the Japanese investors that have invested overseas begin to repatriate”

A major private credit fund claims investment-grade corporate bonds as a pillar of their portfolio, but only 2% of private credit securities are rated B+ or higher, with most of those being B+, meaning investment-grade (BBB-) represents less than 1% of the market—a clear mismatch.

“They said the one of the pillars of their private credit portfolio is investment grade corporate bonds. And we looked into it, and it turns out that in that bonds that are rated that are rated in the private world that have a rating above that is B-plus or higher represent only 2% of all securities. That's that's single B-plus or higher. I'm going to go out on a limb and say the single B-plus ones are more than half of that 2%. So, how many of them are triple B minus? Very, very few and I'm sure they don't really deserve that rating in in many cases. How can something that is under 1% of a market be a pillar of your portfolio?”

Governments across Europe and Western democracies are being challenged by rising populist and protest parties (France's Le Pen, Germany's AfD, UK Reform) as old establishment parties decline dramatically (UK: old parties down to 10% in polls), driven by austerity, inflation, and perceived unfairness.

“in Germany they just announced they want to cut some benefits. Uh and uh and they give more money to Ukraine, which disappears in the war. You you see? And and things like that that is an outrage for the people. And I think uh the move to more and more protest parties is is gaining momentum. Uh you see that the Le Pen party in France, you see that AFD in Germany is gaining momentum. UK Reform, the old parties in the UK that dominated for almost 200 years are down at 10% in the polls. You know, they they disappeared. They are gone.”

Software was touted a year ago as an anchor/pillar of private credit portfolios and perceived as the safest sector, but has now been revealed as disrupted by AI, in a pivot similar to 2007 when Fannie Mae was perceived as a safety net but was actually bankrupt.

“It's funny that a year ago what was being touted as like an anchor to the private credit market with software. Software was perceived to be the safest thing. And then all of a sudden in the fall, people woke up and said, 'Wait a minute, this is being disrupted potentially by AI.' It reminded me of of 2007 when everyone thought that Fannie Mae was going to come in and rescue the problems of defaults and mortgages. In one weekend, it was on a Sunday, I was thinking about it and I got this crack of doom feeling that all of a sudden, I said, 'Wait a minute, Fannie Mae is bankrupt.' But what I actually thought about, I said, 'They're drowning in these problems. Their stock is worth nothing. They can't bail out anybody.' And so the market went in a very short time in 2007 from Fannie Mae can fix this to uh-oh, Fannie Mae is one big barrel of gasoline that's being poured on this fire.”

Scott Bessent, as Secretary of Treasury, may implement yield curve control during the next recession if long-term Treasury rates rise painfully high (e.g., to 6.5%), similar to post-WWII policy, which would keep nominal rates low while inflation rises, eventually leading to a 40-year bear market in bonds.

“you might have a situation where say say long-term treasury rates during a weak economy actually go up, which is my forecast, and they go to maybe I don't know, let's pick a number, 6 6 and 1/2%. Wherever the pain point is. And Scott Bessent decides that what he suggested early in his tenure as Secretary of Treasury might might be a good idea to implement, which is yield curve control like they did in in the aftermath of World War II where the inflation rate was going up, but they just kept long-term interest rates very low. You had negative real real interest rates and that led to ultimately the 40-year bear market in long-term treasury bonds.”

Private equity owns captive insurance companies that are moving risk to offshore reinsurance entities with no regulation, no reporting, no visibility; experienced retired US insurance regulators believe this risk is not genuinely offloaded and is instead hidden on balance sheets.

“there's also then I I don't want to go on too too much further, but there's also this very incestuous link between private equity, private credit, insurance companies that are captive, that are owned by the private credit, that then are moving risk supposedly to offshore insurance companies, which have no regulation, no reporting, no visibility. So, since they're being There's been shady uh shady disclosures or shady communications at almost every level, I'm not sure I believe that this risk is really offset out there in Barbados and the Caymans and Bermuda. So, what's going to happen when the actual, you know, actual reality comes that life insurance has to be paid, fixed annuities have to be paid, and suddenly you're in a recession and those assets actually aren't really properly reserved for? And there's significant uh uh intelligence by very very experienced United States insurance regulators, now retired, that are opining on what the state of this offshore reinsurances, and I'll just put it in a nutshell, it's not good.”

When insurance companies need to actually pay life insurance and fixed annuities in a recession with assets that aren't properly reserved, and offshore reinsurance counterparties fail to cover, a major financial crisis could erupt.

“what's going to happen when the actual, you know, actual reality comes that life insurance has to be paid, fixed annuities have to be paid, and suddenly you're in a recession and those assets actually aren't really properly reserved for? And there's significant uh uh intelligence by very very experienced United States insurance regulators, now retired, that are opining on what the state of this offshore reinsurances, and I'll just put it in a nutshell, it's not good”

The Iran deal signed by Vice President Harris is a capitulation document that is a catastrophe for the US image and Israel, resulting in Iran becoming the new dominant regional power, while Saudi Arabia, Pakistan, Turkey, and Egypt are forming a new military-industrial organization to reduce US dependency.

“I just looked at the 14 points of the memorandum of understanding regarding the Iran war, and if and obviously 10 minutes ago or so or half an hour ago, Vice President Pence signed it. And this is a capitulation document, you know, it's When when you read it, it's just a catastrophe uh for the US image, and it's of course it's a catastrophe for Israel uh as well. And you know, after the war, Iran is new regional power that dominates the region and you see the the shifts going on. Saudi Arabia, Pakistan, Turkey, and Egypt, they are trying to form a new organization, a military industrial complex to reduce dependency from the US”

Zulauf is fully in agreement with the secular uptrend in bond yields, having written a report in June 2020 titled 'The Sale of a Generation for Bonds' predicting this shift.

“I'm I'm fully in agreement there. I I'm not so sure about the emerging markets. Um when the dollar goes down, emerging markets will have a problem economically. I even wrote uh the report um in June 2020, the sale of a generation for bonds”

Private credit crises will come to the surface when 'the tide goes out,' and the market goes out, with all problems becoming visible simultaneously.

“it'll all come to the surface when the tide goes out and the market goes out, you know, all together”

A US-based investor should diversify away from all US and all dollar-based assets, particularly into emerging market equities and bonds in local currencies, because both index returns and currency translation will provide a double whammy of outperformance as the dollar weakens.

“I've been pounding the table. You've got to get away from all US. You've got to get away from all dollar-based, even if you're particularly if you're a a United States person, because you're going to make money on relative performance and on currency translation. And that's been the case now for a year and a half, and I I suspect that we're in the second inning of this, not that not the eight not the or the the bottom of the ninth or something like this.”

Negative sentiment and unhappiness in the US have led to more government programs rather than reform, with figures like AOC gaining momentum, accelerating the debt/financial problem rather than solving it.

“in the United States, you can see that the reaction to uh to uh negative sentiment and uh unhappiness, the reaction has been more more government programs. Look Look at Mondami in in New York City. And those types of people are gaining momentum. Uh n- not losing momentum. And so”

The late-stage boom cycle in US markets will peak sometime between Q3 2024 and Q1 2025, followed by a bear market with 30-50% decline driven by both valuation contraction and recession, not valuation alone.

“I think we are enjoying the later part of the up cycle and uh hooray could go on into anywhere from third quarter of this year to first quarter of next year. That's where I see the equity markets to top out and then a down cycle and the down cycle will be not uh 20% it will be somewhere between 30 and 50%”

Felix is turning very bearish on the dollar for next year (2026-2027) on a secular basis, but not this year (2025), because capital flow dynamics and SWF behavior have shifted structurally.

“I'm also turning very bearish on the dollar for next year. Not not this year. I think we have some time left, but next year and on a secular basis.”

Defaults are starting to come in private credit, bond prices are picking (declining), but the bonds are not being marked down, checking every box of a hidden crisis.

“There's this there's this there's this awareness that something's not right and the defaults are starting to come. The bonds are picking, yet they're not being marked down. This has This is checking just about every box”

At the end of 2021, bonds were 'laughably overvalued' with 10-year yields at 1% and short-term rates at zero, yet $7 trillion of money printing guaranteed inflation; any rational investor knew they faced negative returns in bonds, yet bonds were the best risk-adjusted option of bad choices.

“At the end of 2021, I I started with bonds and I'm like, government bonds, talking about the US here just specifically, it is it was laughably overvalued. You know, the 10-year the long long-term rates were 1%, short-term rates were still at zero. And anybody who had a brain knew that the money printing, the $7 trillion of money, was going to lead to a spike of inflation spike of significance.”

Average US Treasury rates have risen from under 2% across the entire maturity spectrum to just under 4%, with rates other than T-bills now above 4% across the curve.

“we've gone from an average Treasury rate of under 2% across the entire maturity spectrum to now uh just under 4%, and rates uh other than T-bills are above 4% across the curve.”

The primary driver of decision-making is now 'need' rather than greed, fear, or hope; governments need to keep rates low and spending high, people need inflation down and political change, and this constraint-driven behavior creates more imprudent and extreme policy choices.

“you said to me that there's something that's more powerful than both and that's need. And you said, you know, when you need to do something, you don't have a choice. And what I'm hearing right the way through this what you're both saying, I see this thread of need running through everything. The government needs to keep rates low. They need to keep entitlement spending high. The the the people need to get the politicians out. They need to bring inflation down. So, if we are moving into an era where just about every decision is going to be dictated to by need rather than wants and dreams and hopes and aspirations, which is kind of where we've been for 40-odd years, how does that change things?”

Gundlach feels like 'everybody's lying about everything' in private credit: about credit quality, about software exposure (claimed 15% but actually 28%), about liquidity (funds claimed quarterly redemptions but only allowed 5% of assets to redeem per quarter at the fund level, not per investor).

“I felt like I'm getting that feeling that I had in 2005, 2006, but I feel like everybody's lying about everything. You know, they're lying about the credit quality, they're lying about their software exposure. They say it's 15% when it's 28%, you know,”

Inflation, energy prices, and social dissatisfaction have been present for a few years before the Ukraine war and oil price spike, suggesting these are structural issues rather than transient war-related disruptions.

“I think that it has a lot to do, obviously, with the inflation rate, the energy prices, and and the like, but this has been the case now for a few years but before the oil's the oil price went up, before the war”

If Japanese investors begin repatriating capital en masse due to higher yen/rates, this will have massive global implications and is a story worthy of an entire separate discussion.

“Well, the the dominoes that topple if they do start repatriating their investment capital in on masses a story for an entire other conversation. I think three of us could do an hour on that alone.”

In bubble cycles, leading stocks (AI stocks, semiconductor stocks) typically double in the last 6 months before the peak; technically, the semiconductor stocks (those 'selling the shovels') will turn over first, losing momentum before hyperscalers do. Watching semiconductor momentum is the key timing signal, not fundamentals.

“usually double in the last 6 months of the cycle. And that's what you have to follow in the in the semiconductor stocks because they are the major beneficiaries. They are the ones who sell the shovels to the miners. It's not the miners who make the big money. It's those who sell the shovels. And and therefore, you follow those stocks and they tell you when it's over. Before you see that, you see that the hyperscalers will turn over. They lose momentum, they peak”

Jeff restructured his Treasury holdings over 2 years ago (around 2023) to protect clients by shifting from high-coupon (4.75%) to low-coupon (1.5%) 10-year Treasuries, anticipating a potential future restructuring of bonds where coupons are reduced.

“I said maybe they'll just say all all bonds longer than 5 years or something like this we're we're going to say what we're going to change the coupon to 1% or whatever the coupon is now, whichever's the lower. And I kept it to myself, but I actually restructured treasury holdings in some of my funds based on this concept moving to the lowest coupon securities possible. So I I took in in my largest fund the coupon on the treasuries 10 years and longer from 4 and 3/4 down to 1 and 1/2.”

The concentration of 10 AI stocks at 41% of the S&P 500 is dangerous and maps right to the tops of previous cycles, making this an unhealthy index structure.

“the concentration of 10 AI stocks being 41% of the S&P 500. This is a dangerous This is a dangerous percentage. It's it's it's maps right to the tops of previous cycles”

Gold cycles suggest a peak coming in the late 2020s, which fits well with the next major crisis Zulauf expects to begin in 2027.

“the cycles speak for late 20s uh, as a peak coming and that fits very well with the next major crisis that I see coming uh, from 27 on”

An insurance company client reported that 8 different private credit managers owned identical loans, with valuations ranging from 95 (one firm) to 8 (another), indicating widespread valuation fraud and mismark in private credit markets.

“early last year, in the first quarter, I had a big insurance company client come to me. Uh we managed money for them, but they like most insurance companies, they're drowning in private credit and private equity. They've got tons of it. And this firm has had a lot of managers. And he told me he just shared it with me unsolicited that he had gotten an evaluation report for I think year-end 2024, and that eight of the managers owned exactly the same position. This exact you know, if if if they're public thing it would have been the same CUSIP literally. So, it was exactly the same loan, and he said I was really sort of surprised and I'm getting concerned because one firm had it marked at 95, and the and one of the firms at the other end of the spectrum had it marked at eight.”

When Kevin Hassett (Trump administration) was asked about Jeff's bond restructuring concept, he dismissed it as 'won't happen in a million years', which suggests the idea is imminent according to investment logic ('synonym for never is imminent').

“late last year I gave an interview where I actually talked about this and it ended up getting posted on on Bloomberg. And so some Bloomberg person was at the Milken conference last month and they went up to Kevin Hassett who was there in the Trump administration and they asked him, would you ever consider what Gunlock talked about in this interview about kind of coupon Hassett said, it won't happen in a million years. And and so I said that's an interesting answer because in the investment business there the synonym for never is imminent.”