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Jeffrey Gundlach, who runs DoubleLine Capital, said on Tuesday that investors should focus on capital preservation and avoid corporate bonds and Treasuries as inflationary pressures intensify.

Gundlach said investors have not shown an appetite for Treasuries, even as the U.S. stock market has plunged. “There’s no bond rally,” he said in a telephone interview. “Obviously, it is not a deflationary bear market, otherwise you would have a bond rally.”

The S&P 500 hit a three-week low on Tuesday, and the tech-heavy Nasdaq fell to its lowest level in more than seven months, down about 14.6 percent from its record closing high in late August.

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Gundlach, who oversees more than $123 billion and is known on Wall Street as the Bond King, said investors should avoid investment-grade bonds. They are riskier than they used to be because “triple-B” rated credit - the grade for securities just above “junk” status - has increased dramatically since 2008, from 20 percent of all investment grade credit to approximately 50 percent today, he said. Those companies are at the greatest risk of a downgrade when the next economic downturn hits.

“Stay out of investment grade bonds,” Gundlach said. “Because when rates start to rise in earnest, God forbid you get a downgrade. It’s amazing how people have been copacetic about the credit situation.”

Gundlach said the severe selling pressure in U.S. stock markets has not been accompanied by higher volatility. “We don’t have anything resembling a panic low ... which means stocks have further to go,” he said.

“It’s amazing how low the market is and how low the VIX is,” Gundlach said, referring to Wall Street’s volatility index. “Weirdly, with the sell-off, the market is overbought.”

Bitcoin, the highly volatile digital currency, has proven to be the “lead horse” of risk assets, with its recent plunge having a cascading effect on other risk assets, including equities and high-yield junk bonds.

Gundlach added that bitcoin carries so much predictive power “because it is the poster child for excess” in the current market environment. Bitcoin is the “embodiment of the fringe of speculative instinct,” Gundlach said.

Bitcoin has plummeted over 75 percent this year, from a peak of $20,000 touched in December, as retail investors piled into one of the largest bubbles in history.

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In April, Gundlach recommended investors short Facebook Inc as there had been increasing talk of regulating social media companies. Equity bubbles are often popped by regulation, Gundlach said back then.

“Facebook (and other social media companies’ shares) went way too high,” Gundlach said on Tuesday.

Facebook is down over 20 percent since Gundlach’s investment call.

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