The 'Bond King' warns US consumers are headed down 'a death spiral'

In an exclusive interview on "Mornings with Maria," Wednesday, DoubleLine Capital CEO Jeffrey Gundlach – better known as "The Bond King" – cautioned of a weakening economy in 2024 and Americans embarking on a "death spiral" over their personal finances.

"I think that everything but employment is showing stresses, and it's been going on for a while now ever since they did the stimulus," Gundlach told host Maria Bartiromo. "I think that's because the government response was so ridiculously outsized. It was really the 2021 free money that is puzzling because it brought on inflation, which anyone sensible, you should've known that it would."

"But the consumers have ramped up their credit card spending tremendously to fill that gap, which is not sustainable. It's the classic tractor pull," he added. "Once you start borrowing on a credit card to pay a credit card, you're basically in a death spiral with your personal finances."

Traditional macroeconomic indicators are "strongly suggestive" of more volatility, the market leader argued. The yield curve, which depicts the ultimate yields for long-term and short-term bonds, remains inverted, and the unemployment rate is reaching a plateau.

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"So suddenly, short rates start to be relatively lower versus long rates," Gundlach started to explain. "And that has happened in a way that is pretty convincing that we should see economic weakness, say, in the first half of next year."

"The one that's left is employment," he continued. "It's moved above its average of the past year, which is a reason to start paying close attention to it. If it goes up even a few tenths of a percentage point more, it would be in a context historically that has never avoided a recession."

Hiring by U.S. companies slowed more than expected in September, pointing to a labor market that is starting to cool in the face of higher interest rates, according to the ADP National Employment Report released Wednesday morning.

Companies added 89,000 jobs last month, below the 153,000 gain that economists surveyed by Refinitiv predicted. That is also much lower than the revised 180,000 increase recorded in August.

It marked the worst month for job creation since January 2021, painting a grim picture over the September jobs report on Friday.

"When the unemployment rate goes up from its low by only one-half of 1% or more, there's been a recession every single time," Gundlach said. "Based upon that, I think that we're probably looking at the economic slowdown in the first half of next year... I think recession's what I mean."

The billionaire investor also warned over "too much competition for the markets" currently, claiming the price-to-earnings ratio on stocks "has gone to the sky" and that bond yields are up anywhere from 400 to 600 basis points.

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"There's been 4x revaluation of stocks versus bonds, and it favors a fixed-income side where you can get pretty decent returns without a lot of risk as a consequence of what the Fed has done so far," he said. "The risk-reward is so much far superior to where it was two years ago relative to the equities."

Federal Reserve officials, including Chairman Jerome Powell, have opened the door to at least one more rate hike this year – and have signaled that rates will remain elevated for longer as they assess whether high inflation has retreated for good.

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FOX Business’ Megan Henney and Charles Creitz contributed to this report.