Stanley Druckenmiller sheds light on these surreal markets and the challenges of working out a road map to navigate portfolios to profitability.
Stanley Druckenmiller starts the interview with that all too familiar word, “Buckle up.”
“I have been doing this (investing) as the chief investment officer since 1978 and this is about the wildest cocktail, I have ever seen in terms of trying to figure out a roadmap” he said.
“I have been doing this (investing) as the chief investment officer since 1978 and this is about the wildest cocktail, I have ever seen in terms of trying to figure out a roadmap”
Stanley Druckenmiller sheds light on the situation with some thought-provoking facts and figures
“The recession we had, the economic downturn, whatever you want to call it was 5X,” said Stanley Druckenmiller. “More bizarrely while 11 million people unemployed we had the largest increase in personal income in 20 years during a worse economic downturn since WWII because of the massive policy response we got” he added.
Stanley Druckenmiller sheds light on these surreal markets driven by unprecedented fiscal spending and monetary stimulus
“The CARES Act added trillions of dollars in fiscal stimulus. In three months, we increased the deficit more than if you combined the last 5 recessions” he said.
Stanley Druckenmiller also noted that they were five big recession. For example, 1973, 1975, and 1982 recessions. Moreover, the Dotcom bust and most recently the 2008 financial crisis.
“If you added the increase in the deficit in all those five periods and combined them, we increased the deficit more in three months than we did in the total” said Stanley Druckenmiller
Stanley Druckenmiller highlighted that current Fed chair Powell has bought more debt than his two predecessors combined.
“The fed in 6 weeks bought more treasuries than they did in 10 years under Bernanke and Yellen” said Stanley Druckenmiller.
“The CARES Act added trillions of dollars in fiscal stimulus. In three months, we increased the deficit more than if you combined the last 5 recessions”
Moreover, the blowout in corporate debt borrowing in a recession is another segment in fixed income investments where Stanley Druckenmiller sheds light on these surreal markets.
“Corporate borrowing which almost always goes down in a recession went up 400 billion dollars” said Stanley Druckenmiller. To put that into perspective, explained Stanley Druckenmiller, it went down 500 billion during the great financial crisis. “So, we have this massive increase in liquidity stimulus. All this stimulus has flown into financial markets commodities” said Stanley Druckenmiller.
“When I look at what the US has borrowed from its future compared with Asia, I think Asia is the big winner coming out of tech, they are ahead in Robotics” – Stanley Druckenmiller
Stanley Druckenmiller sheds light on these surreal markets and he flags Asia as being a hot spot for investors
“When I look at what the US has borrowed from its future compared with Asia, I think Asia is the big winner coming out of tech, they are ahead in Robotics” he said. China could soon become a global leader in EVs soon.
“I think in the next five years Asia looks a lot better to me. Someway we have got to pay back in terms of productivity, higher rates, and lower dollar for all transfer payments we made. Asia is going to be an outperform especially their currency market” he added.
Stanley Druckenmiller explained that since 018 M2 in the US has grown 25% more than their nominal GDP.
“So, we have a 25% increase in liquidity. In China M2 to nominal GDP is where it was three years ago. So, they have not borrowed anything from their future. We have had a massive liquidity input and frankly very little investments and Fed stimulus and we have done a horrific job with the virus. The Chinese, basically the Asians in general have defeated the virus. They have not borrowed from their future” he said.
“Net investments in China surpassed those of the US. I think this is just the beginning and not the end of a trend” he added.
“The longer the Fed tries to keep rates suppressed so they have more stimulus in the pipeline the more I win on my commodities” – Stanley Druckenmiller
Stanley Druckenmiller is not the only top investor that sees a bright future in Asia, particularly China
Stanley Druckenmiller takes a bullish short term medium view for stocks.
“So, it could not be more different and exciting if you are a macro investor. All this stimulus may be going to be in place just when we release the biggest increase in pent-up demand globally maybe since we have had since the 1920s, which could make the world look extremely different to what it looks today” he said,
Stanley Druckenmiller has a large position in commodities. “The longer the Fed tries to keep rates suppressed so they have more stimulus in the pipeline the more I win on my commodities” he said.
But he also notes that the quicker the Fed responds the more likely his commodities position will be hit.
Stanley Druckenmiller also has a very short dollar position.
Stanley Druckenmiller notes that if bond yields rise sharply that is typically very negative for growth stocks than other stocks. He thinks the comparison between the 2000s is ridiculous. “We had double whammy back then not only the raging mania overvaluation but earning were about to end because those companies which were growing rapidly than were all about building the internet” he said.
Stanley Druckenmiller believes that the combination of valuations and challenged bond markets could put growth stocks in a very challenging environment certainly in the next 5 years relative to what they have been.
Stanley Druckenmiller sheds light on the digital transformation and cryptocurrencies
“You mention the cloud. I think we are in the third innings; we are not in the ninth innings. If anything companies, I speak to are speeding up their transition because they are going to competitively die if they stay behind in the digital transformation” he said.
“Within tech itself FANG, or let’s say Amazon and Microsoft they have been big under performers over the last 2 or 3 months. The market has rotated into 40 times sales companies or radioactive reopening stocks if Fed keeps pushing the envelope those stocks could keep going” he added
He thinks Bitcoin could be the mother of all asset bubbles.
“It would not be this high without central bank stimulus” he said.
They have done unbelievable marketing job, doubt bitcoin will be anything other than a store of value, too volatile and uses too much energy to be a currency” he added.
Concerning managing risk, Stanley Druckenmiller watches his PL account daily.
rather than using mathematical models.