Druckenmiller’s Bold Call: ‘Something Really Bad’ Could Happen

Stop whatever you’re doing! Stan Druckenmiller wants to say a couple of things.

My overriding penchant for irreverence demands I adopt a sarcastically derisive cadence when discussing anything to do with Druckenmiller. It’s not Stan’s fault. Rather, it’s the fault of legions of adults predisposed to a kind of hero worship that I find genuinely pitiable. I say it again and again: Adults shouldn’t worship other adults, especially not for the feat of accumulating large sums of money. Being rich is desirable for a laundry list of obvious reasons, but accumulating piles of money isn’t something for which one should be lionized.

With Druckenmiller, the situation is even more pitiable than usual, because the hero worship isn’t confined to retail investors and “everyday” market participants. Real traders, otherwise disposed to the same sort of irreverence I harbor, idolize Druckenmiller in part because, as CNBC put it Wednesday, he’s “never had a down year in the markets.” (I’ll politely restrain myself from editorializing around that talking point.)

Druckenmiller spoke to Joe Kernen (of course) for the network’s Delivering Alpha Investor Summit. He predicted a hard landing for the US economy and delivered a hodgepodge of other dire soundbites that’ll serve as endless headline fodder, not just for CNBC, but for every other financial media portal, mainstream and otherwise.

Druckenmiller’s “central case” is a hard landing by the end of next year, which hardly makes him an outlier. “I’ll be stunned if we don’t have recession in 2023,” he told Kernen.

And it might not just be any recession. It could be a bad one. Or, at the least, a recession that’s “larger than the so-called average garden variety.” Druckenmiller told a familiar tale: Years of accommodative monetary policy, from rock-bottom rates to large-scale asset purchases to forward guidance, created a bubble. Now, in the face a generational inflation shock, those policies are reversing. “Every one of them,” Druckenmiller said, for emphasis, before telling CNBC that “we’re in deep trouble.”

He was keen to note that it’s not necessarily about tail events. It’s about risk-reward. “You don’t need to talk about black swans to be worried here,” he said. “To me, the risk reward of owning assets doesn’t make a lot of sense.”

Although I agree with him in this case, I’d note that the last time Druckenmiller saw a poor risk-reward asymmetry, US equities promptly staged one the largest rallies in recorded history (figure below).

But hey, we all get it wrong every now and again, right? As Druckenmiller put it Wednesday, while chiding the Fed, “when you make a mistake, you got to admit you’re wrong and move on.”

The bottom line from Druckenmiller was as short as it was nebulous. “I don’t rule out something really bad,” he said.

“Something really bad” is already happening in the UK. This time around, Stan isn’t involved.