Jeffrey Gundlach

Watch out for market sectors and segments that have been growing like weeds in recent years. If something grows like a weed, it’s probably a weed.

Huntington Palisades HOA provides nothing, obviously, since the Palisades is burned to the ground. They insist I pay HOA fees or they’ll FORECLOSE ON MY HOUSE. I pushed back; they said “we have the right”. We’ll see.

Bloomberg ran “key takeaways from the Milken Conference” last year. One was the narrative of a “golden moment” for Private Credit, per the panel. The panel this year might have a different tone. BTW I am on the panel.

I’m told the California Attorney General’s wife has introduced legislation that is being interpreted as making exposing fraud a crime. What I would propose is legislation eliminating all California income taxes until fraud is greatly reduced. Why this defense of fraud?

How does an equity position find its way into a “private credit” fund? Bankruptcy.

“PIK” stands for “payment in kind”. It occurs when a borrower cannot make an interest payment and the lender wants to deny the loan has gone bad. The lender thereby lends more to a proven deadbeat, at the same interest rate of pre-deadbeat status. Whoopsie!

“PIK magic”: borrower cannot make interest payment. It defaults. Lenders don’t want to admit defaults. They book interest as paid that wasn’t. They increase loan principal by the interest defaulted on. They keep the loan value at par. NAV goes up the more loans default. Voila!

Amazingly, and extremely telling, that bottom tier private credit sponsor has, per Bloomberg, marked UP the value of its large Red Lobster debt position five quarters in a row! Marked it UP?!?! Looks like PIK “magic” in action. RUN, RUN, RUN!!!!!

A bottom tier sponsor just marked down its Red Lobster equity position 98% OVERNIGHT. Oddly, that equity position was in a “private credit” fund. Disturbingly, that fund’s large Red Lobster debt holding is marked at par, even though the equity was basically wiped out OVERNIGHT. RUN!!!

A lot of lending to small/midsize companies is for a term of 5 to 7 years. A great deal of debt issued 3/2020 to 9/2021 is therefore coming due these days. UST interest rates were near zero in that issuance time window. They are much higher today. The consequence of those stupidly low rates back then is coming home to roost now with debt roll needs by small/midsize companies.

I hear “everything is fine” from some of the same people that say “this is a great distressed opportunity”. Can’t be both.

What has the “United Nations” ever accomplished?

Several months ago a major Private Credit fund marked its portfolio down 19% overnight. Sounds bad, because it is bad. Did all of the loans get marked down 19% in a single day. Or did 50% of the loans get marked down 38% in a single day. Or did 25% of the loans get marked down 76% in a single day. Which explanation is worse? All of them.

Hearing narratives about Private Credit firms about to make a killing as loans get sold at fire sale prices and they are going to “pick up the pieces”. They Are Going To Be The Sellers At Fire Sale Prices. They own them at 100. Wake up people!

In 2007, I was sitting on a large amount of undrawn commitments to invest in bombed out MBS securities. Didn’t invest at all until 2008, didn’t get fully invested until March 2009. It’s 2007 for Private Credit. Come home to DoubleLine.

Just the administration of the proposed California “Billionaire Tax”, as drafted, would clearly violate the US Constitution’s Fourth Amendment, prohibiting “unreasonable search and seizure”.

“Beware the ides of June.”

On the Julia LaRoche show 1 week ago I predicted the next round of Private Credit redemption requests would be a multiple of the last one (which led to gating in some cases). Check out today’s headlines.

I hear Newsom’s wife took their kids to Alabama to “show them what racism looks like”. I know a lot about life in Alabama. I know a lot about life in Los Angeles. There is more racism in California cities than there is in Alabama.

Quote of the day from DoubleLine’s monthly deep dive strategy meeting, from one of our talented credit managers: “There’s a little bit of upside and a lot of bit of downside.”

Here is what I said: “If your only hope is two Fed cuts this year, you’re backing the wrong horse.”

Larry Fink: “If I allowed more people to redeem, I’m not a fiduciary to those who are staying in”. It’s an admission that the reported NAV is bogus.

Bloomberg: “Jim Zelter (President of Apollo) and Doug Ostrover (Co-CEO of Blue Owl) said the private credit industry failed to clearly explain liquidity restrictions to investors.” So shouldn’t you give them their money back?

Bloomberg: Moody’s ratings lowered its assessment of FS KKR Capital Corp to Ba1, one level into junk, because of what it described as “continuing asset quality challenges”.

Of course assets would have to be pledged as collateral for any borrowings to meet redemptions, under this thought experiment. Doubtful the lenders would accept anything other than the “best” collateral. Think about it.

A leveraged fund says it has enough liquidity to meet 5% redemptions each quarter for the next year without selling a single position or asset. Is “liquidity” a euphemism for “borrowing capacity” here? If so, just more leverage. Whoopsie!

The New York Governor, who told hefty tax payers a while ago to “go to Florida where you belong” is now begging the same ex-taxpayers to come back to New York and pay taxes they left New York to not pay. Because it’s “the right thing to do”. Good luck with that one.

The 2 year U.S. Treasury yield has risen 50 basis points in less than three weeks. It now suggests one Fed HIKE may be coming.

Some private credit giants are talking about monthly or even daily NAVs. Juxtipose this against the foundational arguments for private credit. What entity would be the independent pricing service? Egan-Jones? Dewey, Cheatum and Howe?

On Wall Street: 2005-2006: “Hey! We found a way to turn BBB ratings into AAA ratings. And pocket the difference!!” 2024-2025: “Hey! We found a way put illiquid assets into liquid funds. And pocket the difference!!” Come home to DoubleLine.