DoubleLine Capital CEO and Chief Investment Officer Jeffrey Gundlach sees oil prices moving as low as $70 per barrel and the Federal Reserve raising rates next year.
“I think the Fed will probably raise rates not for fundamental reasons,” Gundlach said on CNBC’s “Squawk Alley” on Monday. “The fundamental reasons for raising rates are completely absent, particularly the inflation argument, which has become completely debunked – particularly [regarding] commodity prices, which are the same as they were in 2010. We’ve had four months in a row of the CPI being zero.”
On the other hand, the Fed feels it must make some policy shift.
“The Fed should not be raising interest rates, and yet they don’t want to be at zero. They’re in a conundrum,” he said. “They might raise rates just to see what happens.”
As for where consumer prices, specifically oil are headed, the fixed-income expert sees oil prices in the mid-$70s or lower, Gundlach says.
The U.S. dollar is poised to appreciate, he adds, “particularly if the Fed raises rates.”
“Sometimes consensus is right,” especially when it comes to currency trends, “which are incredibly powerful and long lived,” the DoubleLine executive said.
As for the Japanese yen, “Everyone thinks it could go to 125 and 140 [to the U.S. dollar], as I do, and even 200 ultimately. In the short term, anything can happen, and with a raise in rates, the dollar should appreciate.”
Entering 2014, Gundlach went against the consensus view that U.S. Treasuries were overvalued, and his view proved to be correct.
“We saw then as the cheapest sector of the bond market … and they still are slightly cheap versus corporate bonds [and] municipal bonds, using certain historic analysis,” Gundlach explained.
“They’re less compelling in 2015 but reasons [to view them as undervalued] are strong,” he said, noting that their yields are “reasonably attractive” compared with European government bonds.
When asked about Bill Gross’ departure from PIMCO, which included a discussion with Gundlach before Gross joined Janus Capital, the DoubleLine executive says he has “mixed feelings.”
“I will say one thing, our investors are happy, that [such a partnership] didn’t happen, because they invested in something that they thought they knew,” he explained.
“If you make a major organizational change, by bringing in someone with that power and personality, it is understandable that they will ask, ‘What does it mean?’ And the honest answer [about adding Gross] would be, ‘I don’t know.’ I’d like to think it would have been successful [as a partnership], but — as I said at the time — DoubleLine doesn’t need a makeover,” Gundlach said on CNBC.
— Check out Gross’ First Janus Outlook Addresses PIMCO Exit, Gloomy Financial Era on ThinkAdvisor.