Thread by @AnilVohra1962

Stanley Druckenmiller interview with
Tony Pasquariello , head of Goldman’s hedge fund coverage.



Thanks to @Muggs00454738 for bringing the clip to my attention.

Some key points:

- Buckle up

- Druckenmiller sees the current policy cocktail and investment environment as the wildest in his career as a CIO (dating back to1978) , and notes how challenging it is to try and figure out an investment roadmap.

- The 2020 recession was 5X that of the average recessions the US has endured since WWII , and the decline took place in one quarter the amount of time of those past recessions

- In 2020,  11 million workers became unemployed, yet we saw the largest increase in personal income in 20 years, and this all took place in a massive downturn

- In three months,  we increased the deficit by a greater degree than the deficit increase over the last 5 recessions combined (73-75, 82, early 90’s, Dotcom, GFC)

- In six weeks in 2020, the Powell Fed enabled purchases of more UST than over the 10 years of leadership under both Bernanke and Yellen

- US corporate borrowings, which had gone from $6t to $10t continued to increase by 400 billion last year despite the  recession, vs a decline of $500b in the GFC

- The US continues to inject liquidity and expand fiscally. Over the past 12-18 months,  US M2 has grown 25% more than nominal GDP. Druckenmiller contrasts this with China, a country that has handled the virus much more effectively and liquidity and debt parameters

there are almost at the opposite end of the spectrum.  M2 to GDP is where it was 3 years ago in China, China has done no QE,  China continues to run a CA surplus and attract investment ( notes that net investment in China just passed US levels for first time ever)

- Druckenmiller admits that while the US responses are possibly excessive ( and is sure we will have to pay for the massive debt increase at some point), stimulus will likely remain in place and even increase in the short term just as the vaccines kick in.

Pent up US/global consumer demand and spending power is possibly at its highest point since 1920s

- While the inflationary impact may still take time, Druckenmiller is short the long end of the UST market, given the policy set of negative real rates and record fiscal expansion.

But he remains long commodities alongside his rate call. The weak US response to the virus and fiscal imbalance vs. the rest of the world has him short the USD short against Yen and possibly other Asian currencies

- The prospects for equities is somewhat more complex. The higher rates of inflation and long-end bond yields would normally pose a natural headwind for growth stocks. Thinks we are in the 3rd or 4th inning in cloud computing and notes the recent underperformance of FANG

stocks over the last few months. So he seems a bit cautious about being too bearish on the growth stock space in the short term.
But Druckenmiller thinks that certain areas of tech ( mentions cloud, robotics, foundry and memory as interesting areas and all places where

Asia has an advantage)  are still ripe for more growth. China, Korea, Taiwan, Korea appear to present  good long prospects for all these IT sectors

- Bitcoin : May end up being  both a great investment and a great bust over time. The marketing of Bitcoin has been amazing.

Is confident the gains in Bitcoin wouldn’t be what they are if global central banks were behaving differently. The asset has more credibility now that is has been around for 13 years, but still seems to view this as a trade rather than a permanent part of the portfolio,

given that there are still many things that could derail it ( CB policy shifts, excessive energy usage and technical issues which he admits he doesn’t fully understand)

- Finally, still thinks American capitalism is alive even though, “US policymakers haven’t engaged in capitalism for quite some time.” But does have sympathy for the claim that US society has morphed into somewhat of a caste system.

In large parts of society and in too many neighborhoods ( is particularly worried about young people in this regard), he sees that the concept of “pulling yourself up by their own bootstraps” is still  unviable and he sees an urgent need for change.