Stanley Druckenmiller is humbled by the market comeback.
“When COVID hit, I was pretty much of the view that there was a good chance that the credit bubble had finally burst and the unwinding of that leverage would take years” said billionaire investor Stanley Druckenmiller on a popular business news channel.
“When COVID hit, I was pretty much of the view that there was a good chance that the credit bubble had finally burst and the unwinding of that leverage would take years”
With the spotlight firmly on the market rally, it is easy to see why Stanley Druckenmiller is humbled by the market comeback
The S&P 500 has rallied an eye-popping 40% since March lows, meanwhile, Stanley Druckenmiller claimed that he returned just 3%, during what many investors and traders thought (and maybe still believe) is a bear market rally.
“Well I’ve been humbled many times in my career, and I’m sure I’ll be many times in the future. And the last three weeks certainly fits that category” said Stanley Druckenmiller.
A Fed-induced V-shape market recovery is in play, which is why Stanley Druckenmiller is humbled by market comeback, albeit in the short-medium term
The central banks’ pandemic response has been spectacular, perhaps even overkill.
QE max has been deployed in cahoots with the world central banks to fend off a multiple asset burst triggered by the great pandemic lockdown. The Federal Reserve (Fed), the world’s central bank by default has swelled its balance sheet to nearly $7 trillion since the outbreak.
“Well I’ve been humbled many times in my career, and I’m sure I’ll be many times in the future. And the last three weeks certainly fits that category”
Moreover, The European Central Bank (ECB) has swung its liquidity cannon in action too with its ECB €750 billion Pandemic Emergency Purchase Program (PEPP).
The Bank of England (BOE) has also adopted policies in tandem with other major central banks pandemic response to the great lockdowns as it announced 200 billion ($247.55 billion) of additional QE, bringing its bond-buying program to a total of £645 billion.
“I had long-term concerns for the last few years that because of easy money, too much debt was being built up in the corporate sector” – Stanley Druckenmiller
Central banks pandemic great lockdown response, unprecedented liquidity is maybe the only factor for the risk on rally, to date, which is why Stanley Druckenmiller is humbled by the market comeback
Don’t fight the Fed mantra is still relevant today. But equally, Fed-induced V-shape market recovery isn’t the same as a V-shape economic recovery. This negative divergence between the economic fundamentals and stock market performance has never been so wide. Markets have gone delirious,they have overdosed on central bank liquidity.
How can rationale investors reconcile bankrupt companies with billion-dollar stock market capitalizations? The landscape is littered with irrational asset prices. Hertz stock rallies after bankruptcy and the $26 billion truck company with zero revenue are just a few.
Stanley Druckenmiller is humbled by market comeback but eventually, the fundamentals catch up and the tide of liquidity turns suddenly like a tsunami crashing into asset prices
Central banks have absolute power over liquidity creation but they don’t have absolute control over where liquidity flows.
Think about it, if the S&P 500 has rallied 40% from its lows, then why does the10 year treasury still yield below 1%? If this stock rally were real, then stocks would be rising and bond prices would be falling, pushing up their corresponding yields.
“I had long-term concerns for the last few years that because of easy money, too much debt was being built up in the corporate sector” said Stanley Druckenmiller.
Stanley Druckenmiller is humbled by market comeback but it could be only a question of time when the bears start roaming again, particularly if the V-shape economic recovery fails to materialize
The collective minds of the best players in finance are bearish and my fifty cents worth is that it would be foolish to bet against them, even if the central banks are. Sooner or later reality catches up with everyone, even the Fed as the US dollar wobbles and gold rallies.
But a final thought, these markets can stay irrational longer than you can stay solvent.
“worn down by the stress of trying to maintain one of the best trading records in the industry while managing an ‘enormous amount of capital” – Stnaley Druckenmiller (on why he closed his hedge fund)
Stanley Freeman Druckenmiller (born June 14, 1953) is an American investor, hedge fund manager, and philanthropist with a net worth of US $4.4 billion (January 2017). Stanley Druckenmiller grew up in a middle-class household in the suburbs of Philadelphia, his father Stanley Thomas Druckenmiller was a chemical engineer. In 1975 Stanley Druckenmiller received a BA in English and economics from Bowdoin College, while a student he opened a hot dog stand with Lawrence B. Lindsey, who later became an economic policy adviser to President George W. Bush).
Stanley Druckenmiller started his financial career as an oil analyst for Pittsburgh National Bank. In 1977 Stanley Druckenmiller followed the bank’s management trainee path and he became head of the bank’s equity research group after one year.
Stanley Druckenmiller then founded his firm, Duquesne Capital Management in1981.
In 1988, he was hired by George Soros to replace Victor Niederhoffer at Quantum Fund.
It was George Soros and Stanley Druckenmiller who famously “broke the Bank of England” when they shorted the British pound sterling in 1992.
With what could be a hard Brexit around the corner one wonders whether history will repeat itself with other starlette traders doing a copycat trade in the hope of propelling his/her fortune and career to the stratosphere.
But like so many top investors Stanley Druckenmiller’s investment career also had its share of ebbs and flows.
Stanley Druckenmiller left Soros in 2000 after taking large losses in technology stocks.
In 2010 Druckenmiller announced the closing of his hedge fund “telling investors he’d been worn down by the stress of trying to maintain one of the best trading records in the industry while managing an ‘enormous amount of capital”.
Stanley Druckenmiller’s trading/investment style is similar to George Soros, where both hold a portfolio of long and short positions in stocks. Moreover, both investors use leverage to trade futures and currencies. In early 2019 Stanley Druckenmiller held large positions in Microsoft, Abbott Laboratories, Salesforce.com, Delta Airlines, and American Airlines.
Stanley Druckenmiller is also a great philanthropist. He has been described as the most charitable man in America giving $705 million to foundations that support medical research, education, and anti-poverty, including a $100 million gift to found a Neuroscience Institute at NYU School of Medicine.