Jeffrey Gundlach, a billionaire investor known as the “Bond King” recently shared his pessimistic outlook for the stock market. He said he sees a massive crash ahead. But there are two investments that he thinks everyone should consider right now to protect their wealth from what is coming.
“Within 18 months, it’s going to crack pretty hard. I think that you want to be avoiding it for the time being. When the next big meltdown happens, I think the U.S. is going to be the worst-performing market, actually, and that’ll have a lot to do with the dollar weakening,” warned Gundlach.
The reason for his pessimism is actually due to everyone else’s overly-optimistic view. Everyone thinks the country will have a smooth, “v-shaped” recovery.
“I don’t think people fully understand how many business closures there’s going to be in the next few months,” he said, adding that he’s shocked by the surge in empty retail space. “There’s going to be a lot more of that. I think it’s going to really accelerate. I think there’s going to be real problems in the wintertime here.”
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Ahead of the crash he sees coming, he says investors should be allocating their portfolios with a “barbell” approach to diversify away as much risk as possible. Gold and cash are two pillars of his “permanent portfolio” approach with 25% weighting in each. This comes along with 25% in stocks and 25% in bonds.
“I actually think owning 25% gold isn’t crazy right now. Nor do I think owning 25% cash is crazy. “That’s a good investment right now. I think we have such a potential tail risk of outcomes, such a dispersed potential outcomes, that you really need to have this barbelled asset allocation concept.”
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Gundlach says the coming crash will present a “very rare” opportunity for investors to load up on bargains when the market drops. However, patience is critical.
“The trade is to wait for that trade. It will be quite a pleasant experience to not be in the car on the first wheel of the roller coaster that’s coming. I just want to be very low risk right now,” he said.
If Goldman Sach is right, the third-quarter earnings season that kicks off this week could be a major catalyst for the stock market correction that Gundlach is predicting.
Analysts for the bank expect earnings to fall 21% year-over-year. They say collapsing margins, a modest sales decline and a reluctance to provide guidance ahead of the election will serve as major stock-market headwinds.