Jeffrey Gundlach, the widely followed investor who runs DoubleLine Capital, warned Friday that crumbling credit markets could expose more fund debacles such as Third Avenue Management’s junk bond portfolio and the Federal Reserve should take note of deteriorating financial conditions.

“I’d have to believe that if they met today that they wouldn’t raise rates,” Gundlach told Reuters in a telephone interview. “I mean, Wow. Look at the chart of JNK (The SPDR® Barclays High Yield Bond ETF). It’s accelerating to the downside.”

Thursday, Martin Whitman's Third Avenue Management said it was barring investor withdrawals while it liquidated its high-yield bond fund, an unusual move that highlights the dangers of loading up on risky assets that are hard to trade even in good times.

"There's never just one cockroach" in any kind of credit meltdown, said Gundlach, who oversees $80 billion at the Los Angeles-based DoubleLine Capital. Investors have been on "credit overload," in a reach for yield, Gundlach said. "People are too long credit and the credit is melting down and the stock market is whistling through the graveyard. It is so similar to 2007, it’s scary."

The junk-bond fund blowup comes ahead of next week's Federal Reserve's Open Market Committee meeting on December 15 and 16, at which time policy makers are expected to raise rates from near-zero levels for the first time in nearly a decade.

Gundlach, who has been warning that the U.S. Federal Reserve should not tighten monetary policy next week, said: "They're just hell-bent on raising rates. They talked that they would do it and they want to do it -- and yet nominal GDP is lower than it was in September of 2012."

"Yet they did QE3 in September 2012," Gundlach said.

Gundlach said investors should note that the PCE deflator is currently lower than it was in September of 2012; junk bonds are massively weaker, as are emerging markets and the CRB index.

"How is it that QE3 was necessary with all of those indicators substantially stronger than they are today and yet we are going to raise rates now 'because we promised.'"

Gundlach said the best investment trade at the moment is to sell the S&P 500 Index and buy closed-end credit funds "because closed-end credit funds are down massively and the S&P 500 was at its high." There's ample downside protection in beaten-up close-end credit funds, Gundlach said.