Gold long, weak US growth, FED is lost and negative interest rates makes no sense…
I have been doing this job for close to 30 years now – through that time I have worked with some of the best talents in trading in the world, I have also had the pleasure of meeting many great business people, but in my world there is two or three people – who I:
– ALWAYS listen to
– ALWAYS respect
– ALWAYS need to check my world view against..
Some of these are private, but the most public one, and the only person I am a “fan” of is Stanley Druckenmiller… not only is he one of modern history’s best fund managers, but he analysis is crisp, clear and open minded. He is far more diplomatic than me – and better – in expressing them, but tonights speech by Druckenmiller at Sohn Conference confirms to me long held view:
– Gold is superior asset in present part of cycle
– Fed is lost – totally lost and nothing they say match their action – ‘The audio doesn’t match the video’ as I phrase it.
– Negative interest is worst policy misktake EVER…..
– Debt is and remain elephant in the room..
Here is quick note from tonights speech – I will make more available on Twitter and probably also in Macro Digest tomorrow…
Stanley Druckenmiller warned on Wednesday that the Federal Reserve’s low-rate policy is creating vast long-run risks for the US economy. Source: FT.
Mr Druckenmiller, a billionaire former hedge fund manager, said at the Sohn Conference in New York that Fed policymakers are “raising the odds of the economic tail risk they are trying to avoid”, such as spurring credit bubbles, by keeping interest rates near historic lows.
The central bank increased its benchmark interest rate to a range of 0.25 to 0.5 percentage point in December as the US economy heated up and the slack in the labour market lessened. However, it has since dimmed its rate-rise plans on worries about the negative effects that financial market turmoil early this year and sluggish global growth could have on the domestic economy.
But Mr Druckenmiller reckons current economic conditions suggest the Fed’s benchmark interest rate should be closer to 3 per cent.
“This is the least data-dependent Fed in history,” he said.
Mr Druckenmiller said the “longest period ever of easy monetary policies” has caused groups to borrow at a quick clip and then use the funds in ways that are not economically productive. For instance, he noted that “most of the debt today has been used for financial engineering,” in the form of stock buybacks and other methods that provide a boon to corporate profits and are often cheered by investors.
He said that contrasts with other periods, such as the 1990s when debt was used to craft the building blocks of the Internet.
Stanley Druckenmiller: Corporate America, China And The Fed Are Stuck… Buy Gold
“I have argued that the myopic policy makers have no endgame,” billionaire Stanley Druckenmiller said towards the end of a scathing twenty minute romp through all of the world’s economic problems.
The U.S. debt is out of control, China is even worse and the worst offender is the Federal Reserve, Druckenmiller said. Corporations in the United States are stuck in the mud, forelorn of growth, unwilling to invest and addicted to share buybacks to gin up their stocks. It is a sentiment Druckenmiller has had for years, but at the Sohn conference the famed hedge fund manager indicated he means it this time.
Eleven years ago, Druckenmiller warned the Sohn audience of then Federal Reserve chair Alan Greenspan’s blunders in inflating an epic mortgage bubble that was sure to crash. On Wednesday, he said the bubble inflated by former chair Ben Bernanke and current chairwoman Janet Yellen is many magnitudes worse. The Fed, Druckenmiller said, is using low interest rates to ease borrowing costs and smooth over problems in the global economy.
This radical Central Bank accommodation is leading to unproductive investment, and is an issue that is even worse in China, an engine of global demand. Whether it is S&P 500 Index corporations, U.S. households or the state-managed economy in China, Druckenmiller believes cheap money is borrowing from future growth, and will backfire spectacularly.
“While policy makers have no endgame, markets do,” he said. Druckenmiller is increasingly nervous about risk assets and recommended investors take refuge in gold.