The CEO of DoubleLine Capital says a global shift in capital flows is happening right now, obscured by the onslaught of headlines about hostilities in the Middle East.
In a new interview with Julia La Roche, billionaire bond king Jeffrey Gundlach says US equities are now trading at a steep premium relative to the rest of the world.
“The United States versus all the rest of the world stock market, excluding the United States, used to be at the same price-to-book ratio about 15-20 years ago. And now the price-to-book on the S&P 500 is more than double the price-to-book of the rest of the world, excluding the United States. And this is an extraordinarily overvaluation.”
According to the billionaire, the term “US exceptionalism” just means that US markets have outperformed the rest of the world. But he highlights that a big trend shift is happening under the hood, a reversal that he thinks could play out for years and benefit investors who position early.
“I think that we are in a multi-year period. We’re probably in the second inning. That is probably the latest that we are in the game of this nine-inning baseball game analogy of foreign markets outperforming the United States.”
Amid the shift in capital flows away from the US, Gundlach says it’s time for investors to go global and look to reallocate capital elsewhere. He also names one asset that’s offering a golden opportunity for long-term investors.
“So I have an unusual asset allocation recommendation. I basically recommended 40% in stocks, all of them non-US stocks, some of them like Brazil, Chile, some Southeast Asian stocks, and the like. I recommend only about 25% in fixed income, all of it being inside of 10 years, and all of it being in the higher part of the quality spectrum.
And then I recommend about 15% in commodities. I would probably have 10% in a Bloomberg Commodities Index and 5% in gold, because I believe that gold is very attractive right now, having gone up tremendously last year to a very frothy level of $5,500. But it fell down to $4,100 earlier this week. And so I think gold will continue to be a strong performer.”
Gundlach also tells investors to save some dry powder, as he believes there will be a window of opportunity in the near term to scoop up assets for cheap.
“And then I think investors should have the balance of their portfolio in cash because things are going to get cheaper along the line of 2026.”
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