Stanley Druckenmiller is reasonably constructive on both risk assets and the economy over the near- to intermediate-term, the legend among legends told Bloomberg TV, in a wide-ranging interview aired on Wednesday.
His rationale is straightforward: The fiscal stimulus push is getting some traction on a global scale, monetary policy is easy and trade tensions look set to abate, at least for a few months.
“With that kind of unprecedented stimulus relative to the circumstances, it’s hard to have anything other than a constructive view on markets, risk and the economy in the intermediate term”, Druckenmiller mused.
During the interview, he also admitted to underperforming the broad market in 2019, noting that he just got into the double-digits last week.
Of course, the broad market has been hard to beat this year. As discussed at length in “Lots Of Beta, But No Alpha Makes Jack A Dull Boy“, the S&P is up 26%, TLT has logged a 14% gain, AGG is up 6%, LQD 13.8% and HYG “just” 8%.
Given the non-existent expense ratios those vehicles carry, you’d be forgiven for asking why anyone should bother even trying.
Of course, part of the problem is policy uncertainty. And a good bit of that emanates from the White House, something Druckenmiller isn’t exactly shy about discussing.
“I’ve just never trusted this administration not to do something that would preclude me from taking positions that I felt were safe and secure and all-in risk”, he said. “Unfortunately, I think a lot of people probably felt the same way”.
“As you know, people have actually sold equities and put them into bonds this year”, he continued. Here are a couple of charts on that:
Druckenmiller drove the point home. To wit:
This administration, with wondering about where the hell the next bomb is coming from, just doesn’t allow me to take some of the positions I’ve taken historically where I just thought it was a one-way bet.
He presumably meant “bomb” figuratively, but you could take it literally too, if you wanted.
In addition to concerns about the general unpredictability of policy under the Trump administration, Druckenmiller isn’t particularly enamored with the president’s incessant calls for negative rates.
“A year ago, he thought [the Fed] was wrong to be hiking rates ‘on autopilot’ and publicly called on policy makers to pause”, Bloomberg reminds you, before noting that Druckenmiller “bought Treasuries with the expectation the Fed would have to cut, which it did starting in July”.
The problem, though, is that the Fed has overshot in the other direction – or at least according to Druckenmiller.
Needless to say, Trump doesn’t agree. “[It] would be sooo great if the Fed would further lower interest rates and quantitative ease”, the president said Tuesday, in a tweet. “This is the time to do it”.
“I will go to my grave believing that the financial crisis happened because of bubbles created by easy money”, Druckenmiller told Bloomberg.
“And then this crazy president saying we need negative rates to compete with negative rates in countries where they clearly aren’t working”, he marveled, incredulous. “It’s the most anti-capitalist idea I could ever dream up”.