Macro Tourist: Don’t Forget Stanley Druckenmiller’s QE Lessons

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This is about QE/QT and the non-intuitive market response to the Fed buying/selling bonds.

I have long argued that QE was BOND BEARISH – not bullish.

Now, I know most everyone thinks the opposite. The Fed buying bonds through QE? That must mean bonds are headed higher – after all there is all that extra demand out there. Even the Federal Reserve tells you in their research that their own buying lowered bond yields. Before you click away, let me play you a video of another “dumb money manager” who happens to feel the same way as me:

(If the video does not load, please refresh your page)

Got that?

Stanley Druckenmiller: “QE buying bonds would be bearish for bonds”.

His colleagues: “What is wrong with you”?

Well, let’s “go to the tapes” and see how Druck’s prediction turned out:


Not bad.

“My theory was that QE – buying of the bonds by the government – would cause risk to go up and decrease the demand for bonds from other entities”, Druckenmiller said. “Then the day we stopped QE, bonds went up, stocks went down”.

He continued, “I have followed this for eight years and it was seven for seven”.

Let’s go back to the literal “tapes” for the rest of the soundbite:


There you have it. Don’t listen to me – listen to the best money manager of all time. QE was bond bearish.

This week, the Fed announced it’s bringing forward the end of balance sheet runoff.

Ending QT might not be the same as starting QE, but at the very least, don’t assume the government stopping their bond balance sheet wind down will be bond bullish.


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