Delivering Alpha

Gundlach at Delivering Alpha: Fed's not hiking

Gundlach: Economy can't corroborate Fed rate hike hopes
Gundlach: Economy can't corroborate Fed rate hike hopes

Bond king Jeff Gundlach sees a Federal Reserve that wants to raise interest rates this year but can't.

That's because the U.S. central bank again has badly overestimated U.S. economic growth, a mistake that will keep the Fed near zero throughout 2015.

"Every year it's the same thing: It's the triumph of hope over experience, just like a second marriage," the head of DoubleLine Capital said during the Delivering Alpha conference presented by CNBC and Institutional Investor. "Now, the most recent expectation is the lowest it's ever been."

The Fed at one time had pegged nominal 2015 gross domestic product growth in excess of 5 percent, Gundlach added. First-quarter real GDP actually contracted 0.2 percent, with expectations for the second quarter varying around 2.4 percent to 3 percent, and the Fed's favorite inflation gauge is reading barely above 1 percent.

Gundlach believes the Fed will not raise rates in 2015. He cautioned investors against assuming that a tightening process will happen just because Fed Chair Janet Yellen said the Fed believes a hike will happen this year.

He said the Fed's data dependency ultimately will lead to a delay in increases.

Gundlach spoke on a panel with fellow investing titan Bill Miller, most recently the head of LMM

Miller said he remains committed to his big Amazon stake, and likes home builders and airlines as well. He is short oil.

"We think the builders, the major builders, which all trade at below market multiples...are going to grow earnings at 20 to 25 percent per year," Miller said. "It's a very different environment, and the next three to five years—great."

He owns Lennar and Pulte, "a bunch of them" that he expects to grow over the next three to five years.

Miller specifically mentioned Delta, which he said has 15 percent free cash flow and a 20 percent operating margin.

"It it was a junk bond, it would be twice the current price," he said.