Taps Coogan – September 9th, 2020

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Legendary investor Stanley Druckenmiller, arguably the most successful hedge fund manager alive today, recently sat down with CNBC to discuss the “raging mania” he sees in financial markets and its cause: what he describes as the effective merger of the Federal Reserve and the Treasury.

The second part of the interview can be viewed here (there is some overlap):

“The next 3-5 years are going to be very, very challenging … for the first time in a long, long time I’m actually worried about inflation,” says legendary investor Stanley Druckenmiller on the Fed. “I think we could easily see 5-10% inflation in the next 4 or 5 years.” pic.twitter.com/RP0xev407h

— Squawk Box (@SquawkCNBC) September 9, 2020

 

Some excerpts from Stanely Druckenmiller:

“I think the merging of the Fed and the Treasury, which is effectively what’s happening during Covid, set a precedent that we’ve never seen since the Fed got their independence and it’s obviously creating a massive, massive raging mania in financial assets and as you just pointed out… it has not spilled over to Main Street…”

“I hear a lot of people on the air lauding Jay Powell, saying he saved the world and I do think he did a great job in March but I think the follow up has been excessive… Remember the ‘Mistro’ in 2005 and how that worked out. Look, everybody loves a party… but inevitably after a big party there is a hangover and right now we are in an absolutely raging mania… I have no clue where the stock market is going to go in the near term. I don’t know whether it’s going to go up 10%. I don’t know whether it’s going to go down 10%. There is no valuation support because we dropped 10%. That hasn’t mattered because we are so far out of the valuation realm and with the Fed doing what they’re doing that doesn’t matter. But I would say that the next three to five years are going to be very very challenging.”

“Look what they’re risking in terms of financial stability to hit that 2% mark. My own sort of central case is that for the first time in a long long time I am actually worried about inflation… De facto MMT, which is what we are doing right now… I think it’s dangerous. I think we could easily see 5% to 10% inflation in the next four or five years. Ironically, I think he has also raised the risk of deflation. I cannot find a deflation that happened because you were near the so-called zero bound. Every one (deflationary event) was proceeded by an asset bubble and he’s created this massive asset bubble… So ironically, he’s raised the risk of both tails… The odds of us hitting the sweet spot… has actually gone way down with the Fed activity…”

There is more to the interview, so enjoy it above.

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