Bond investor Jeffrey Gundlach believes the “fiscal explosion” associated with the coronavirus will ultimately lead to a weaker dollar — and investors aren’t giving enough weight to that risk.

The “twin deficits” created by runaway government spending and continued U.S. appetite for foreign purchases have long been seen as a negative for the greenback, the world’s most dominant fiat and reserve currency. However, the CEO of DoubleLine Capital said a dollar crash — if and when it happens — could easily cause the U.S.’s financial dominance to “fade away.”

While it’s not imminent, “there’s a risk that the dollar starts to reverse into a significant downtrend because the value of the dollar versus other currencies is greatly affected by the growth in our budget and trade deficit," Gundlach told Yahoo Finance in a wide-ranging interview.

While the U.S. trade deficit has fallen because of the COVID-19 crisis’ impact on global growth, the same factor has sent the fiscal deficit exploding.

Although every major economy is “doing strange policies” to thwart the virus’ effect on their economy, Gundlach insisted the U.S.’s balance sheet is worse.

The world’s largest economy “dwarfs the policies, particularly what the Federal Reserve is doing, versus the European Central Bank (ECB) and other central banks. What we're doing dwarfs who they've been up to. We're really carrying the burden here in terms of fiscal explosion," Gundlach added.

A number of economists have warned the fiscal surge could result in a weaker dollar, which might create purchasing power problems. Additionally, "the dominance of the U.S. markets will start to fade away," the billionaire added.

Six problems with the rally

In the midst of a record second-quarter rally, Gundlach told Yahoo Finance that Wall Street’s recent outperformance in the face of surging coronavirus infections was actually driven by what he dubs the "Super 6," which consists of Facebook (FB), Amazon (AMZN), Apple (AAPL), Alphabet (GOOGL), Netflix (NFLX), and Microsoft (MSFT).

"Without the Super 6, there is no earnings growth in the United States stock market. There isn't any for the past five years. If you take them out, there's nothing,” the investor said.

“There's no earnings growth at all in the small caps. So this is all being driven by price, it is not by earnings. And, of course, earnings have taken a tremendous hit," Gundlach added.

He estimated that earnings in the stock market were the equivalent to where they were in 2016, when the market was a third lower. "So, the fundamentals are completely out of sync with how the market has been manipulated," he added.