One of the most-anticipated speakers of any Sohn Investment Conference is Stanley Druckenmiller, head of Duquesne Family Office LLC and the world's most famous forex trader, having basically broken the Bank of England by shorting the pound sterling in 1992. His Sohn appearances are famously oracular; he predicted the subprime crisis at his 2005 talk. Based on his talk today, we should be very worried indeed.
Druckenmilller pointed out that the current investment environment mirrors that of 1981, the year that he started Duquesne Capital Management. "It's not a coincidence that the strange bedfellows [Democratic Speaker of the House] Tip O'Neill and Ronald Reagan produced the greatest reforms in Social Security and taxes."
But can today be a mirror of that? Druckenmiller doesn't see it. In those days, he pointed out, Treasury bonds were still a non-laughable investment. Now, by contrast, "People extol equity market. It has its own acronym: 'TINA', There Is No Alternative."
The Modern Fed's ‘Myopia’
Druckenmiller argued, "Policy response to the great financial crisis was so forceful that it prevented any deleveraging. Leverage has actually increased globally. From where I stand, that was the intent of most policymakers."
He criticized the Fed and its "radical dovishness" for putting the nation into "the longest period ever of easing monetary policies." Given that the current unemployment rate is 5% and interest is at 2%, argued Druckenmiller, the policies seem to be ignoring basic economic data ."Ironically, this is the least data-dependent Fed in history... and this is the longest deviation from historical norms."
Even Worse than the Pre-Subprime Environment
Druckenmiller recalled that at the 2005 Sohn Conference, he argued that "the Greenspan Fed was sowing the seeds for subprime borrowing." Yet that environment "pales in comparison to today’s monetary experiment."
"We’ve borrowed so much from our future for so long the chickens are coming home to roost.... If we have borrowed more from our future than at any time at history, we should be selling at a discount not a premium.
I Assume He Means Gold
Druckenmiller said, "While policymakers have no endgame, markets do." So what's he bullish on? He gave his Riddle of the Sphinx: "What is the one asset I didn’t want to own in 1981? Some regard it as a metal. We regard it as a currency, and it remains our largest currency allocation."