'Bond King' Jeff Gundlach warns no Fed rate cuts are coming, says investors should hoard cash and gold

The "Bond King" has a warning for investors jumping into the risk-on trade. Jeffrey Gundlach, the legendary fixed-income investor and the CIO of DoubleLine Capital, said he was recommending that investors load up on cash, gold, and other "real assets" in their portfolios this year. Speaking to Bloomberg this week, he pointed to a handful of risks he saw looming over stocks and other risk assets -- namely, the risk that the Fed could hike rates rather than cut them. Gundlach, a longtime bear who's repeatedly warned of hotter inflation and the US dollar eroding in value, pointed to expectations at the start of the year that the central bank would issue two to three rate cuts by 2026-end. "If you're buying risk assets on the back of only two rate cuts -- is your high conviction idea -- you're back on the wrong horse. We're not going to get rate cuts this year," Gundlach said. Anticipation for rate cuts was a major force pushing the market higher in the past year. But the outlook for rates has been largely soured by the Iran war, which sent oil prices soaring and fanned concerns about higher inflation across the economy. The odds that the Fed will issue any rate cuts this year clocked in at around 12% on Friday, down from about a 21% chance priced in a month ago, according to the CME FedWatch tool. The odds of a rate hike have also surged over the last month to 16%, up from a near-zero probability in early April. Stocks also look expensive, considering the upside risk to rates, Gundlach said. The major indexes have climbed to new records in recent weeks, despite the US and Iran having yet to ink an official peace deal. "I just think markets are very, very high," Gundlach said, laying out the latest updates to his ideal portfolio for investors. Here's what makes up Gundlach's updated investing playbook: Cash (20% allocation). Gundlach said he was a proponent of investors having one-fifth of their portfolios in cash, unchanged from his previous recommendation late last year. Hard assets, like commodities (20% allocation). A commodities index would work well for this segment of the portfolio, Gundlach said, pointing to strength in the sector over the last year. The Global X Bloomberg Commodity Complex ETF is up 9% year-to-date. His recommendation to earmark 20% of a portfolio to real assets is up from his prior 10%-15% recommendation last year. Gold, one type of hard asset, is of particular interest to Gundlach. If the precious metal were to dip below $3,500 an ounce, Gundlach said he would be buying it "with both hands." He had no specific recommended portfolio allocation to bullion, but previously said having as much as a 25% allocation to the metal wasn't "excessive."