Stanley Druckenmiller sees a decade of no returns.  

“There’s a high probability in my mind that the market, at best, is going to be kind of flat for 10 years, sort of like this ’66 to ’82 time period,” said Stanley Druckenmiller.

Druckenmiller added that with inflation raging, central banks raising rates, deglobalization taking hold, and the war in Ukraine dragging on, the odds of a global recession are now the highest in decades. 

Most advanced economies are already in a recession.

The world’s largest economy, the US, has posted two consecutive quarters of declining GDP, which is the technical definition of a recession. 

“There’s a high probability in my mind that the market, at best, is going to be kind of flat for 10 years, sort of like this ’66 to ’82 time period”

STANLEY DRUCKENMILLER

The European Union, with an estimated 16.6 trillion dollar GDP in 2022, representing approximately one-sixth of the global economy, is most likely deep in recession. Europe is facing an ongoing war in the east, which wreaks havoc on energy supplies, food supplies, and supply chain problems.  

The forthcoming data out of Europe is likely to confirm that the EU, a 16.6 trillion dollar trading bloc, is heading deep into a recession.

The UK has fallen into a recession. Japan is also in a recession and trying to avert a currency crisis as the Bank of Japan spent $37bn in October’s record intervention to support the yen. China’s economy is also weakening.

So the global economy is probably already in a recession. It just has not been officially declared yet. 

“the EU, a 16.6 trillion dollar trading bloc, is heading deep into a recession”

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Stanley Druckenmiller sees a decade of no returns as globalization peaks 

 Stanley Druckenmiller noted that globalization has a “deflationary” effect because it increases worker productivity and speeds up technological advancement. However, that tailwind is now fading. To wit:

“When I look back at the bull market that we’ve had in financial assets starting in 1982. All the factors that created that boom not only have stopped, they’ve reversed.”

The war in Ukraine, the geographical center of Europe, is redrawing the security apparatus of Europe, and with that Europe’s energy security policy and trade. Unipolar globalization with a hegemon at the globe’s helm is replaced. A new East-West bloc is emerging under the BRIC East alliance with its autonomous military alliance versus the West NATO alliance. Security, energy, and trade agreements walk in lockstep.  

Unipolarity, synonymous with global trade, is being replaced with bipolarity and for some nations, this has been deflationary. For example, India has been able to buy deep-discounted Russian energy, which is deflationary for India and beneficial for its economy.

” The true wealth of a nation is created on the factory floor”
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Stanley Druckenmiller sees a decade of no-returns discounts onshoring

What if the hegemon and its western alliance decide to reconfigure its economy toward production funneling capital investments into building plants and machinery and away from the speculative paper gambling economy?

China may no longer want to buy US treasuries, but what if the US decided to not import from China and make it at home instead?

So the end of globalization could also mean the end of the twin deficit.

Going into debt, then monetizing the debt, and going deeper into debt to finance more exports is an unsustainable debt model that has created a blowout in the twin trade and public deficits. 

The US going into debt to build the world’s largest factory in China has benefited Wall Street, as it makes billions in commission, recycling the debt into inexpensive high street loans and mortgages.

But it is a short-term business model benefiting a few in the FIRE economy while gutting the backbone of the economy, manufacturing, and production. Moreover, because employment in the FIRE economy is precarious that creates a wave of bad debts, a subprime mortgage crisis, and on a macro scale, an unsustainable public deficit as more people rely on the state handouts for their welfare.    

 The true wealth of a nation is created on the factory floor.  

The top five economies are manufacturing economies.   

“When I look back at the bull market that we’ve had in financial assets really starting in 1982. All the factors that created that boom not only have stopped, they’ve reversed” – Stanley Druckenmiller

Stanley Druckenmiller sees a decade of no returns, but maybe the returns are in onshoring

Perhaps the opportunities in the coming decade for investors lie in the rebuilding of the productive base of the economy within its borders or trading bloc. 

If the hourly wage is higher in the West, then that could encourage industry to invest in the latest fourth-generation technologies, automation which increases productivity and is deflationary.

For example, blockchain technology in fintech reduces the cost of banking.

Moving to the next level of intelligent manufacturing is where investment opportunities could lie for investors.

If a unilateral globalized world is being replaced with an East-West-centric world where there are more trade barriers and sanctions, then those businesses able to produce it at home for less could boom. 

While I am not an advocate of Brexit some UK businesses that make goods within the UK that are benefiting as customers prefer to buy and source locally avoiding all the regulations and costs for importing into the UK from the EU. But the net outcome of Brexit is inflationary.

“When I look back at the bull market that we’ve had in financial assets really starting in 1982. All the factors that created that boom not only have stopped, they’ve reversed,”  said Stanley Druckenmiller.

If Stanley Druckenmiller sees a decade of no-returns in the speculative FIRE economy maybe that is not so bad

The question is what happens next when central banks in cahoots continue with yield suppression, keep cash deposit rates artificially low, and inflate the massive debt away. 

Will we see another decade of financial suppression so that the gamblers can get rich gaming it, or will the cheap finance be deployed in an era of the renaissance of onshoring?