When last the market heard from Stan Druckenmiller, he came across as pessimistic and flummoxed.
“I pray I’m wrong on this, but I just think that the V-out is a fantasy”, he said, deriding the quick recovery narrative during a virtual chat with the Economic Club of New York last month.
“The risk-reward for equity is maybe as bad as I’ve seen it in my career”, he went on to declare, before noting that “the wild card is the Fed can always step up their [asset] purchases”.
That was on May 12.
Fast forward a month (almost exactly) and US equities are up nearly 12% on top of the ~27% they had already rallied when Druckenmiller called the risk-reward the worst in decades.
In fact, this is now on track to be the most spectacular bear market rally in history and it’s probably fair to say the Nasdaq 100, having hit a new record, is no longer in a bear market at all. Semantic arguments might still apply for the S&P, but not for big-cap tech.
The bottom line: Stan was wrong. There’s just no other way to say it.
And he didn’t try to find any other way to say it on Monday during an interview with CNBC.
“I was up 2% the day of the bottom, and I’ve made all of 3% in the 40% rally”, he said.
“I missed a great opportunity here”, he added. “Won’t be the last time”.
Probably not. Because Stan runs a family office now. But it very well may have been “the last time” in another era, because no matter who you are, you really (really) don’t want to be the person who underperforms the S&P by 37% in the space of 51 days.
Obviously, this says (much) more about the unprecedented (some would say “surreal” or even “bizarre”) times in which we live and trade than it does about Druckenmiller, whose place in the hall of fame was cemented before some in the Robinhood crowd were even born.
So, consider this just a little good-natured humor.
But make no mistake, it is funny. And Stan seems to understand that.
“Well, I’ve been humbled many times in my career, and I’m sure I’ll be humbled many times in the future”, he told Joe Kernen. “When COVID hit, I was pretty much of the view that there was a good chance the credit bubble had finally burst and the unwinding of that leverage would take years”.
Instead, Jerome Powell kicked open the door for corporate borrowers who would otherwise have seen it slam shut in their face. That, in turn, catalyzed record corporate issuance, which means still more leverage, especially if cash flows don’t recover or if the economy suffers some kind of nightmarish double-dip recession tied to a second virus wave.
“What is clearly happening is the excitement of pre-opening is allowing a lot of these companies that have been casualties of COVID to come back”, Druckenmiller went on to say.
If you’re wondering whether he’s still excited about Amazon (last month he gushed that the company “has made all of our lives better”), the answer is yes, but Stan sounds like he’s embracing the pro-cyclical rotation.
“I have still something like Amazon and Microsoft in my largest holdings, but I have the least growth weighting in my portfolio that I’ve had in maybe six or seven years”, he told CNBC.
Four weeks ago, he called what was going on inside the Beltway (whether at the White House or on Capitol Hill or inside the Eccles building) “one of the most bizarre decision making processes I’ve ever seen”.
Now, he says if Congress fails to deliver more stimulus in July (when Senate Republicans will decide whether or not to move ahead on an additional virus relief package), you could see another bad outcome in markets.
“If they deliver in July, you get one outcome. If they don’t, liquidity falls off a cliff and you get another outcome”, he said.
But he’s been wrong before.