Taps Coogan – May 3rd, 2023
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Legendary investor Stanley Druckenmiller, arguably the most successful fund manager alive today, who produced average annual returns of 30% from 1986 to 2010 without a single down year, recently spoke with Norges Bank, the central bank of Norway, about his outlook for the economy and markets:
On a hard landing an fixed income:
“For someone like me that likes to look at history and come up with different scenarios, this is a particularly difficult period. Two years ago it wasn’t so difficult… One of the most important things to do is not to play when you don’t see a fat pitch. I don’t see a fat pitch in fixed income. It is extremely complicated because I am in the ‘hard landing’ camp, probably sometime later this year, but this is so complicated because… even if I am in the hard landing camp, which I am, what do you do with 2-year treasuries at a sub 4% with Fed Funds at 5.25%? I’d better be right with my hard landing…”
On the Fed:
“They’ve shown some mettle over the last year but historically I wouldn’t say Jerome Powell is a profile in courage. So if we get into a hard landing and he moves aggressively, I could see bonds and inflation coming back with vigor… The response to Silicon Valley unnerved me a little because in four days they printed enough money, they basically wiped out the entire reduction in the balance sheet they had done for five or six months. So, if I am trying too look forward and anticipate, I don’t have a lot of faith in these guys, should we get into a hard landing, that they’re going to hold the line and not do something worse than Arthur Burns…”
On Equities:
“If you put a gun to my head, I’d be short the economy… Oils and chemicals went up in 1973 and 1974. Staples have gone up in bad recessions in the US historically. What do you do with a company, if you have a bad recession in the US, if it’s growing wildly throughout that period because we have an arms race going on and in space? It’s not clear to me that it goes down. I think the equities are complicated”
On the US Dollar:
“I’d say the one area where I am reasonably comfortable with is I am short the US dollar… Now that, on a relative basis, the tightening in the US going forward will not be as much as the foreigners, now that we’ve weaponized the dollar… Historically we could be trusted, we had the rule of law, a lot of things…”
There is much more to the discussion, so enjoy it above.
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