On Druckenmiller’s view
«Betting on a soft landing is a very very long shot»
A key statement by Druckenmiller can be summarized as follows:
Remember, normally a rate hike cycle does not end until the fed funds rate is above the inflation rate. That happens either because the inflation rate falls or because the fed funds rate rises: Currently, there is still a very, very long way to go.
- Highly highly probable that the bearmarket has ways to run
- Probabilities of soft landing are pretty remote; expecting it goes against decades of history
- When inflation came over 5% it never came down without raising FED Funds rate over CPI (means 8% acutally) and never came down without a recession
- Doesn’t know when recession will occur. 2 Trillion excess savings were able to influence that
- Price vs news is a very weakend tool compared to 20 years ago.
- Learned in Bear Markets to morph in Bonds, Commodites, Treasurys and avoid stocks. He made most money in bear markets. This time bonds may be different. Something like this never happened before. – Bonds are not attractive, but shorting them as 6 months ago seems less attractive. Same with stocks: being too aggressiv in shorts can be very very risky in Bear marktes. Currently he is looking from the sidelines.
- Expects to reopen his stock shorts when markets allows the possibility. Fixed income much more complicated. Currency might get more interesting.
- He would be surprised if in the next six months he would not short the dollar.
- Foreign exchange looks interesting. Energy also and commodities.
- On crypto: you cannot build 2 trillion in wealth, take one out and say that does not matter. Correlation between crypto and NASDAQ is high for obvious reasons.
- He is sympathetic to what Charly Munger says on crypto, and Mill Miller the same. Would be very surprised if Blockchain isnt a real topic five years from now.