Notes from Stanley Druckenmiller's Ira Sohn speech
Stanley Druckenmiller is always worth a close listen.
He notes that two records are undefeated in US history.
Once inflation gets above 5%, it’s never come down unless the Fed Funds rate has gotten above the CPI. The CPI is currently around 8.6%.
Once inflation has gotten above 5%, it’s never been tamed without a recession.
Druckenmiller sees a hard landing. He suspects that the recession will take some time to hit (coming some time in 2023). However, he thinks that inflation is likely to fall slowly without the Fed Funds rate ever exceeding the CPI. His view is that extended central bank aggression has created a large number of zombie companies and fragile companies, and therefore relatively small increases in the Fed Funds rate will cause significant economic destruction. The Fed can therefore bring down inflation with relatively small moves in the Fed Funds rate.
With regard to US equities, he thinks that the first leg of bear market is over, but likely has more room to run. Reading between the lines, he sees the historical analog to the coming recession as something close to 1973. If that is true, multiples could collapse quite a bit from here.
“I will be surprised if some time in the next six months I’m not short the dollar”. He thinks that the dollar rallied because the US was first to tighten, but he sees the US fundamentals as horrible.
Is crypto effecting other asset markets? “You can’t build two trillion in wealth and take a trillion out, and have it not matter.” He believes that the strong positive correlation between NASDAQ and crypto has a fundamental driver behind it (the same people traffic in both) and therefore is unlikely to disappear. He thinks that, in an era of irresponsible monetary policy, both gold and btc can do well, but btc is the asset you want to own in the bull cycle and gold is the asset you want to hold in the bear cycle (now).
Druckenmiller is not a believer in big tech at the moment. “I’m too bearish on the world to go there yet…. They have gotten too cheap for them to be my shorts anymore.”
At minute 59, Druckenmiller says. “This is my 45th consecutive year as a CIO, and, in 45 years, I have never seen a constellation, while I was a practitioner or frankly studied one, where there was no historical analog. Right now I probably have more humility in my views going forward than I’ve had maybe ever.” He saw the subprime crisis as quite predictable. Now he thinks prediction is quite perilous, but he says, “What the central banks globally have done the last ten or eleven years… it leaves me open minded to something really bad.” Historically he’s felt that severe financial crises had a tendency to impart financial discipline that would last decades. He feels like this has been short circuited by central bank policy.