Fireside Chat with Felix Zulauf & Jeffrey Gundlach, Moderated by Grant Williams | June 15, 2026

People want your view on the upcoming year and so forth. When I looked at the end of 2021 at markets, I started with bonds. Government bonds here in the US were laughably overvalued. The 10-year long-term rates were 1%, short-term rates were still at zero. Anyone with a brain knew that the seven trillion dollars of money printing was going to lead to a significant inflation spike. So you didn't want bonds—you knew you were looking at negative returns. And lo and behold, in 2022 the long bond dropped 52 points. If you looked at the equity market, by all valuation measures—PE, Shiller PE, price to book, price to sales—going back decades, the S&P 500 was in the top percentile of overvaluation on most indicators. I don't think there was any that weren't at least in the top decile. Government bonds are terrible, equities at their valuations look terrible, so what am I supposed to do? Anything I can map the characteristics of treasury bonds and equities onto—I'm going to hate that asset class too. 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 because it's at zero, so what do I want?' They said, 'I'll tell you what—you've been coming to me, Mr. Salesperson, with this blind pool concept for a while, and I'm actually kind of listening to you now. I'll give you money for this spa 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 it over and I won't like it either. So just take my money, don't give me a statement, don't tell me what's going on, and I'm going to keep my fingers crossed that it'll be good in three to five years.'

Now it's three to five years later, and we're seeing 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 marked up if the bonds pick, which is completely absurd accounting. It's amazing that you've got a creditor that's not paying and they say, 'Okay, you don't have to pay me cash, but we put it on the back of the loan,' and they keep the loan marked at par. There was a case reported last month where the private equity interest underneath the pay-in-kind bond was wiped out—marked down 98% from about $100 million to $800,000 overnight—and they still mark the picking bonds at par. I don't know, where's the DOJ on this one?

But that kind of stuff's going on, and it leads to what? Desperation is the strongest. I've seen many examples of it in my career, and that's what happened at the end of 2021. It's people who haven't given up yet—they still think they can get 10% returns on investments on a PE of 43 on the S&P 500 and on a bond portfolio that yields five. Those things are just not possible.

This concept I mentioned about potentially restructuring bonds—this idea came to me over two years ago, and I actually acted on it two years ago to protect my clients. I thought maybe they'll just say all bonds longer than five years, we're going to change the coupon to 1% or whatever the coupon is now, whichever is lower. 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. In my largest fund, I took the coupon on treasuries ten years and longer from four and three quarters down to one and a half. So I'm completely insulated from this type of restructuring. I kept it under my hat for a while, but late last year I gave an interview where I actually talked about this, and it ended up getting posted on Bloomberg. So some Bloomberg person was at the Milken conference last month and went up to Kevin Hassett, who was there from the Trump administration, and asked him, 'Would you ever consider what Gundlach talked about in this interview about cutting the coupon?' Hassett said, 'It won't happen in a million years.' And so I said that's an interesting answer, because in the investment business, the synonym for 'never' is 'imminent.'

That's absolutely right. I sort of famously made a fool of myself on September 30th of 1999—I turned maximum negative on the NASDAQ and it went up something like 80% in the fourth quarter. But actually I wasn't a total idiot, because 18 months later from September of 1999, you were down to about 20. You went from 100 to 180 to something like 20. So it ended up being good, but Felix is absolutely right. It's the most dangerous part of the market when the fundamentals are deteriorating but you still have the momentum going in the stocks. And that's where we are right now.

I've been spending much more time on it recently—meaning the last couple of months—because I'm really noticing the social aspect of it. Just recently in Lake Tahoe, which is a rich community—one side is California, the other side is Nevada—and there's a Nevada public utility that gives electricity to both sides of the lake. They sent a notice to the residents on the California side that they will no longer be supplying electricity starting in the second quarter of 2027. 2027, under a year from now, we're not going to supply you with electricity because we've got these data centers that are taking up all the electricity and we don't have any for you. So they're either going to have to somehow build their own nuclear reactor kit for their backyard, which sounds fraught with peril, or more likely the authorities will have to go onto the wholesale market and buy electricity transported through the Nevada utility lines, but from jurisdictions that have a surplus. I've been around long enough to know those wholesalers are going to jack the price up mightily. There are already tremendous complaints about electricity prices—my electricity bills have gone very much higher in the past couple of years. There are already protests about it. There are projects in Louisiana that are already slated and probably approved that would use collectively more than all of the electricity in Louisiana. So there's tremendous pushback because the costs are enormous and it has tremendous negative social impacts on water. You might be able to improve technology in data centers over time, but you can't create snowpack. No amount of money is going to create more snowpack, so the water shortage is going to be substantial. And it's the pollution, the noise, the lights—I've seen interviews where people live 100 yards from a monumental data center running 24/7/365, making huge noise and bright lights. That type of thing is going on and there's tremendous pushback that is only going to increase, making these projects more expensive and more delayed. So we have a resource problem here. It's not just a capital problem—it's also a resource problem.

I've always been suspicious of private things because they're laundering their volatility—they're not really reporting the volatility. So you get Sharpe ratio arguments, drawdown arguments that aren't really valid. I've been thinking about that for a long time, but I really first started thinking something was changing about exactly one year ago when I was speaking at a conference here in Los Angeles. Before my fireside chat, the group before me was a bunch of private credit people—senior people from the big firms. I was listening to them and I got this eerie feeling that I had heard before. The tone change sounded a lot like where we were going pre-global financial crisis, where suddenly everything looked absolutely fantastic and then all of a sudden you started to hear different language on the panels. In this panel, they started talking about tension between different private credit firms, the need to increase their runway—they were basically admitting they couldn't liquidate any of their investments. I thought, 'Wow, this is starting to sound like they're not as confident as they used to be.'

Then early last year in the first quarter, I had a big insurance company client come to me. We managed money for them, but 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. He told me, unsolicited, that he had gotten an evaluation report for year-end 2024, and eight of the managers owned exactly the same position—the same loan literally. One firm had it marked at 95 and another at the other end of the spectrum had it marked at 8. I started saying, 'Uh-oh, this is starting to sound like what I expected.' Then I started reading about the ratings on these private deals. They're being purchased—they're not coming from S&P or Moody's. Not that they were perfect 20 years ago, far from it. They're coming from private, small, relatively unknown rating agencies. We all know what that means. You're not getting a deep dive from an analyst. A lot of these firms have 30 employees, including the receptionist, and yet they're rating hundreds and hundreds of loans, each one with a 200 or 250 page document. I don't think they're really rating them. I think what they're doing is giving them a price list: if you want a triple-C rating, it costs you a dollar. If you want a single-D rating, it's going to cost you $10, etc., and they somehow find their way to getting a triple-B-minus rating.

Then I got a pitch book. One of my best analysts was looking at pitch books from some of the biggest private credit funds. This one that has trillions and trillions of dollars across all private spectrum said that one of the pillars of their private credit portfolio is investment-grade corporate bonds. We looked into it and it turns out that bonds rated in the private world that have a rating of B-plus or higher represent only 2% of all securities. Single B-plus or higher—only 2%. 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 many cases. How can something that is under 1% of a market be a pillar of your portfolio?

So I started saying I'm getting that feeling I had in 2005-2006, where I feel like everybody's lying about everything. They're lying about the credit quality. They're lying about their software exposure—they say it's 15% when it's 28%. They created an illusion of liquidity on these interval funds that has completely fallen apart. As of December 31st, a lot of people that bought these products through financial intermediaries were led to believe they could get all their money out every quarter. They didn't focus on the fact that at the fund level, not the investor level, it's only 5%. So suddenly people are saying, 'Wait a minute, I thought I could get out and I can't get out.' I'm seeing the marks being written down sequentially. One of the biggest private credit funds at year-end was marked at 100—today it's marked at 77. I was giving a talk right after the markdown to 77 and I asked, 'Who in this room thinks the next adjustment to the NAV is going to be up?' Not a single hand went up. Because everybody knows. There's this awareness that something's not right.

The defaults are starting to come. The bonds are picking yet they're not being marked down. This is checking just about every box. But unlike 2007, where we had data points every minute of every day because we had the ABX triple-B index that started to fall like a brick, here we only get marks when they feel like reporting—and there's no requirement that they actually do it. There's also this very incestuous link between private equity, private credit, and 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. Since there have been shady disclosures or shady communications on 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 actuarial 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? There's significant intelligence by very experienced, now-retired United States insurance regulators who are opining on the state of offshore reinsurance. I'll just put it in a nutshell: it's not good. So this is all wrapped up—a problem wrapped in an enigma with no solution. And it will all come to the surface when the tide goes out and the market goes down all together.

I keep hearing that there's no problems. But why then are you marking your portfolio down? That's early summer of 2007. A year ago I told my staff this feels a lot to me like 2005. Well now it's a year later, so now it feels like 2006.

It's funny—a year ago what was being touted as an anchor to the credit market was 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 2007 when everyone thought Fannie Mae was going to come in and rescue the problems of defaults in mortgages. And one weekend, on a Sunday, I was thinking about it and I got this crack-of-doom feeling. All of a sudden I said, 'Wait a minute—Fannie Mae is bankrupt.' When I actually thought about it, I said they're drowning in these problems. Their stock is worth nothing. They can't bail out anybody. 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 being poured on this fire.' And that happened to private credit in the software consideration. And I suspect there are going to be other pivots—what we thought was pretty good actually has some hidden features or hidden macroeconomic events happening that will make it not seem as safe as you thought. Like the SpaceX thing came out last week, and people talked about how SpaceX was a good company—not very capital intensive. Well, not anymore. They're suddenly massively capital intensive because they're now going full-on into AI with all of its spending requirements. So we'll see what happens to that one.

I think it's a problem that's been lurking for a long time—the yields are too low. But now they seem to be having a problem with their currency, particularly versus the dollar, where they intervene. They keep defending that 160 level, but it just doesn't hold. So there seems to be pressure there that will certainly not be a positive for the global economy. I think you probably know better than I do.

I believe so. Yeah, it's been there for nine years now. I've got about 500,000 followers.

Thank you very much. I enjoyed it. Thank you.