Druckenmiller Warns Fed's "Market Obsession" Creates "Long-Term Risks To The Economy"

Tyler Durden's picture




 

"I hope we can all agree that once in a century emergency measures are no longer necessary five years into an economic recovery," begins Stan Druckenmiller as he unleashed a torrent of uncomfortable truthiness on a crowd of Fed apologists stunned by his reality check that the Federal Reserve is putting the economy at risk by continuing its aggressive market intervention.. Blasting the counterfactual "mob", Druck slams, "To economists and Fed officials who continually cite that we are better off than we would have been without ZIRP for long I ask why is that the relevant policy time horizon? Five years after the crisis and with growing signs of economic normalization it seems to be time to let go of myopic goals." Simply put, Druckenmiller concludes, rather ominously, "I am fearful that today our obsession with what will happen to markets and the economy in the near term is causing us to misjudge the accumulation of much greater long term risks to our economy."

 

 

Some other choice comments...

"today's fed policy is as puzzling to me as during any of those periods, and frankly, rivals 2003 in the late stages to early 2004 as the most baffling of the number of instances i have in mind."

 

"There is a heated debate as to what a 'neutral' funds rate would be. We should be debating why we haven't moved more meaningfully toward the neutral funds rate if for no other reason so the Fed will have additional weapons available if the outlook darkens again,"

 

"I made a living analyzing the future, not the past. The Fed's monetary experiment will be more disruptive down the road than anticipated,"

 

"Every ounce of intuition in my body is that the potential costs have crossed the potential benefits in Fed policies."

 

"I don't know what's in the Fed's forecasting record that allows them to make such a bet."

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Wed, 07/16/2014 - 17:43 | 4964491 Vespasian
Vespasian's picture

BTFATH

 

"I don't know what's in the Fed's forecasting record that allows them to make such a bet."

 

What's 'IN' the FED's forecasting record is that if we don't keep printing until infinity & beyond, this whole PONZI, including our counterfeit SCRIPT which we denominate asset values upon, will go POOF... 

Got any better ideas?

Wed, 07/16/2014 - 17:41 | 4964507 Sudden Debt
Sudden Debt's picture

These guys are so disconnected from reality... Recovery... Jeezz..

In europe, the wheels have fallen off. It's the worst summer in a decade.

Wed, 07/16/2014 - 17:45 | 4964534 Temporalist
Temporalist's picture

Worst for what?  You need more Kool-Aid.  There's never been a better time to...

Wed, 07/16/2014 - 18:02 | 4964589 Quinvarius
Quinvarius's picture

...to break out the KY unless you think you can handle no lube.

In Japan they have been trying money printing for 20 years.  The stock market never held its gains.  The bubble is where disproportionate amount of that free money goes before it sloshes back to equilibrium.  It is clear money in the USA has all gone to one place.

Wed, 07/16/2014 - 19:07 | 4964844 disabledvet
disabledvet's picture

Think we're talking "motor oil" this time. "Tank treads of history."

Did see XOM is investing in a huge refinery complex in Antwerp.

"We haven't had that spirit here since

1945...

Wed, 07/16/2014 - 20:17 | 4965089 max2205
max2205's picture

Brother can you spare some interest so I can pay my mortgage? 

Wed, 07/16/2014 - 22:19 | 4965496 frankTHE COIN
frankTHE COIN's picture

Can I have your Leftovers?

Wed, 07/16/2014 - 17:48 | 4964550 Al Huxley
Al Huxley's picture

Draghi's got a few choice words that will fix that up, don't you worry.  Just go about your business and remember - Buy Stocks!  and have faith in your Central Bankers - they love you and only want what's best for you.

Wed, 07/16/2014 - 17:56 | 4964576 stocktivity
stocktivity's picture

It's all Bullshit!!!

Wed, 07/16/2014 - 18:29 | 4964695 Stoploss
Stoploss's picture

Like fighting a forest fire with a thimble.

They're getting a handle on it though...

Wed, 07/16/2014 - 22:22 | 4965509 Shizzmoney
Shizzmoney's picture

it is a recovery....for the FOMC members' and Druckenmiller's pockets

Wed, 07/16/2014 - 17:42 | 4964511 stant
stant's picture

Saw it live . Made some jaws drop

Wed, 07/16/2014 - 17:41 | 4964512 NoDebt
NoDebt's picture

The Fed is monetizing the national debt.  If asset bubbles get inflated along the way, so be it.  They don't care.

Every now and then they raise rates to prove to themselves they aren't in a liquidity trap, the markets tank, the economy tanks and they quickly reverse course.  

With inflation starting to notch up I would say their policies are just STARTING to work.  Long way to go yet and many fiat dollars to print.

Wed, 07/16/2014 - 17:51 | 4964563 kurt
kurt's picture

U.S. Dollar protected by the full wrath of the Federal "Reserve".

Wed, 07/16/2014 - 19:01 | 4964831 phoolish
phoolish's picture

Protected by 6000 Nukes.

Wed, 07/16/2014 - 22:22 | 4965511 frankTHE COIN
frankTHE COIN's picture

And they are so used to lowering and raising Rates in a normal recession they are blinded at what they are really looking at.

Wed, 07/16/2014 - 17:42 | 4964515 fonzannoon
fonzannoon's picture

They can make such a bet because it's our money they are playing with.

Wed, 07/16/2014 - 17:46 | 4964529 Vespasian
Vespasian's picture

Only if your 'MONEY' you hold & account for, you do so using their SCRIPT...

Wed, 07/16/2014 - 18:06 | 4964603 Da Yooper
Da Yooper's picture

& when they screw up we pay the price

 

they get a bonus

 


Wed, 07/16/2014 - 17:46 | 4964530 Pheonyte
Pheonyte's picture

What are these "growing signs of economic normalization" he speaks of? To paraphrase Bentham, the entire "market" is nonsense on Fed stilts.

Wed, 07/16/2014 - 17:46 | 4964533 Jayda1850
Jayda1850's picture

No need to worry. The Bernank told me they got this shit under control within 15 minutes or less. Dominoes can't even beat that.

Wed, 07/16/2014 - 17:45 | 4964535 Al Huxley
Al Huxley's picture

He should be fined $1 billion for making treasonous remarks against the FED.  See, see how useful that S&P precedent is?

Thu, 07/17/2014 - 05:13 | 4966399 Bernoulli
Bernoulli's picture

He'd probably like such a "fine" because it would drive up his NON-GAAP earnings per share.

At the same time, paying such fines ensure a preferred treatment by the authorities in the event of crash. How else would they pick who should survive the coming monster crash?

Wed, 07/16/2014 - 17:46 | 4964541 Rehab Willie
Rehab Willie's picture

it's like religion, you just need a little faith.

Wed, 07/16/2014 - 18:53 | 4964793 Nick Jihad
Nick Jihad's picture

Exactly. Choose Hope over Cynicism!  If you like your new normal, you can keep it.

Wed, 07/16/2014 - 17:50 | 4964555 NYPoke
NYPoke's picture

The Future?  Trillions, upon Trillions, of debt.  It isn't hard to see. Nor are the Dems & Pubs who incurred it, to get reelected.

Wed, 07/16/2014 - 17:50 | 4964558 kurt
kurt's picture

We are as well off after ZIRP as Iraq is after the US occupation.

Wed, 07/16/2014 - 17:55 | 4964573 Frank N. Beans
Frank N. Beans's picture

Mr Drunkenmillerbeer you'd better make sure all nail guns are removed from your home.

Wed, 07/16/2014 - 18:56 | 4964805 WSP
WSP's picture

You have it all wrong---Druckenmiller is doing the propaganda job FOR THE FED, NOT AGAINST THEM. You see, the Federal Reserve relies on the population believing that they get it wrong or are incompetent as Druckenmiller asserts INSTEAD OF BEING THE EVIL LEVIATHAN CRIMINAL THUGS THAT THEY ARE.  

The biggest problem we have right now is too many people are still calling the Federal Reserve misguided or incompetent---MAKE NO MISTAKE----THE EVIL THUGS AT THE FEDERAL RESERVE are DELIBERATELY DESTROYING AMERICA and it is BY DESIGN---NO INCOMPETENCE YOU CAN BE ASSURED.

Somehow or another WE MUST get people to understand the game the evil criminal thugs as the Federal Reserve are playing---they know what they are doing and it is high time the public stop making excuses and recognize that these evil off-shore bankers are destroying the American way of life, capitalism, our sovereignty, freedoms, etc and they will not stop until we are all their slaves!

It is not enough for people to understand the Federal Reserve is a private off-shore bank---they must also understand that these criminals want to enslave and destroy humanity (and are doing a great job of it)!

Wed, 07/16/2014 - 18:05 | 4964599 i_call_you_my_base
i_call_you_my_base's picture

Forever war, forever economic recovery. Get used to it.

Wed, 07/16/2014 - 19:49 | 4964989 Eirik Magnus Larssen
Eirik Magnus Larssen's picture

Nice George W. Bush reference.

Wed, 07/16/2014 - 18:14 | 4964630 techstrategy
techstrategy's picture

Sell float scams (bubble stocks like NFLX, LNKD, AMZN, TSLA, etc) and buy gold (and GLD does work because new baskets get created to create indirect physical demand).  Use their bubble against them.  In float scam terms, gold has never been cheaper.

Wed, 07/16/2014 - 18:18 | 4964653 Flakmeister
Flakmeister's picture

Funny how no "Alpha" males noticed that this is the first time that cheap money has not resulted in new supplies of cheap oil....

 

Wed, 07/16/2014 - 18:49 | 4964769 disabledvet
disabledvet's picture

We haven't had "cheap oil" since 1973.

No shortage or super expensive debt though...nor is there a shortage of said debt either.

TRILLIONS as a matter of fact.

"What happens if we nuke the dollar this time just like Kissinger/Nixon?"

Of course the even wilder alternative is that the world has no need for the oil anymore...and the tens of TRILLIONS lent out "under the assumption that the price can only go higher"?

Wed, 07/16/2014 - 18:19 | 4964656 GreatUncle
GreatUncle's picture

Central banker script and policy.

Start manipulating the money supply create a little here or there and grow the debt slowly. Nice this all under control but that policy was an attempt to balance the books and an already existing problem.

Then as the policy mature, the system no longer adds up, so create more and more and start to load the debt.

Now with a humujngous sized debt that needs destroying and global war was good for this to reset it. Now we have poxy little wars that only burn off a liitle of the debt.

The problem now is if the central bankers cannot destroy sizeable portion of the the debt how do they ever justify the same level of increases in the debt with no return to service it.

The debt swamps the system ... or ..... they inflate the system to fuck, destroying all normal people to preserve themselves.

In this world any attempt to destroy the majority financially resets at  the lowest level that then flows upwards through the system.

In the end forced to infllate they will inflate and thereby create a future they don't want. Can't wait to see their faces :-)

Wed, 07/16/2014 - 18:24 | 4964673 NOTaREALmerican
NOTaREALmerican's picture

Just another pessimist who hates Merica, and the troops.

Wed, 07/16/2014 - 18:40 | 4964733 disabledvet
disabledvet's picture

"The forecast calls for pain.
THE FORECAST CALLS FOR PAIN!

My gal is getting cold and the forecast calls for paaaaaaaaain."

This is all about financing a war(s?) not another speculative frenzy on Wall Street. Israel, Ukraine, the South China Sea...all of this is to be and in fact is being monetized.

If another Bank blows up "Treasury already has a plan for that" even if it means putting every man, woman and child in the USA on the payroll.

No one in the USA is going to go hungry because somebody wants their 100 million dollar bonus again.

Wed, 07/16/2014 - 18:49 | 4964770 Racer
Racer's picture

11m

Uberdove alert: FED’S EVANS SAYS LABOR MARKET IMPROVED FASTER THAN EXPECTED:WSJ."

LOLOLOL

Translation: ooooooo OOOPPPsssss, we overdid it with the seasonal adjustments

Thu, 07/17/2014 - 01:25 | 4966123 lasvegaspersona
lasvegaspersona's picture

yeah, when things get serious you have to lie...but eventually the lies get harder to tell as one part needs to make something look good while another part needs to make that same thing look bad.

One of the ways they do this is with 'revisions'. The news is good at first...but that makes it hard to make the next period look better. So when the good numbers sink in, and when fewer people are paying attention (after all except here who else follows this stuff anyway) they revise the number to 'not as good'. Then they can say 'hey...better than those sucky numbers we had last month or year or quarter.

Eventually things are just so bad and their lying skills are so lame it all just goes plop.

Wed, 07/16/2014 - 18:51 | 4964775 yogibear
yogibear's picture

Just take in more illegals and hand them out EBTs, welfare and a new GM.  That should boost debt and make the Federal Reserve happy. Debt is money.

 Once millions of illegals see all the freebies they'll tell their friends and they'll come over, Obama and the Fed can pile on tens of  trillions more in debt.  Before you know it South America will relocate to North America (US) which will make the libtards happy.

Wed, 07/16/2014 - 19:01 | 4964827 Livermore Legend
Livermore Legend's picture

I am Right with you Flak....

The First Law why they can't "Inflate their Way Out".....

There are Others........

 

 

 

 

 

Wed, 07/16/2014 - 20:10 | 4965063 Tenshin Headache
Tenshin Headache's picture

Echoing that, Ambrose Evans-Pritchard in the Telegraph today:

To some it feels like 2004, when the Greenspan Fed found itself badly behind the curve, suddenly switching from nonchalance in May to rate rises in June. "They may have left it too late again: the risk is a reckoning point when rates rise abruptly," said Jens Nordvig, from Nomura.

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/109723...

 

Thu, 07/17/2014 - 01:01 | 4966082 lasvegaspersona
lasvegaspersona's picture

Druck is missing the bigger picture.

He sees the 'economy' but fails to understand the real problems being addressed. If the Fed was just tuning up the business cycle they would have allowed rates to normalize and we would have been back to work in the usual 18 months.

He needs to look to what is really happening in the derivatives market and the controls being exerted by the Fed and the ESF. The dollar usgae has grown and the crushing amount of currency has had to be pushed into increasingly obscure and disconnected vehicles...disconnected from real things and real wealth. 

Why should the many counties and countries of the world be buying interest rate swaps? Why does so much get held in the Forex markets? I think it is because so much money has been created that real investments were bought up long ago. Gold is only available as paper gold. Equities return ZIP after risk is weighed.

These guys are fighting a losing battle to save the dollar itself while funding a government hopelessly unable to fund itself.

We used to have the help of other countries. They would buy Treasuries and take some of the heat off of inflation. They quit helping years ago. All you can say now is that they aren't selling.

So instead of all those new dollars that are being lent into existence flooding into the usual markets rocketing the price of everything imaginable we see investment in derivatives....anything that will hold all the sewage leaking from Washington as long as bread and gold do not rise in price. The gold they manage with an endless supply of paper. I'm not clear why bread is not $10 a loaf except that the broader economy has not grown. Bread buyers don't have the money and bread growers still deal with oil at 'just' $100 a barrel.

We truly have a system being supported by an entire world that has soaked up US dollars for years. Now they have stopped and now we will see what happens. I'm expecting rain and then a flood.

Thu, 07/17/2014 - 06:18 | 4966447 Arius
Arius's picture

"Druck is missing the bigger picture."

 

Druck is missing it and you are getting it ... no wonder you got all the time in the World to write a paper in response to a message ... better spent the time at the casino ... opppsss forgot that requires Money, yes, that is what Druck has plenty of it ...

SLOW DOWN ... will you? 

You ZHers amaze me ....it is fun to read this site ...all kinds

 

Thu, 07/17/2014 - 07:29 | 4966546 AdvancingTime
AdvancingTime's picture

I contend the primary reason that inflation has not raised its ugly head or become a major economic issue is because we are pouring such a large  percentage of wealth into intangible products or goods. If faith drops in these intangible "promises" and money suddenly flows into tangible goods seeking a safe haven inflation will soar. Like many of those who study the economy I worry about the massive debt being accumulated by governments and the rate that central banks have expanded the money supply.

The timetable on which economic events unfold is often quite uneven and this supports the possibility of an inflation scenario. A key issue being one of timing. If the price of gas jumps to $8 a gallon overnight do you buy gas and not make your car payment or stop driving the twenty miles to work? Answer, it could be months before your car is repossessed so you buy gas.

 It is important to remember that debts can go unpaid and promises be left unfilled. If this happens where does it  leave us? Chaos and major disruption would result from such a scenario. As we have seen from the economic crisis of 2008 and following many other unsettling developments legal actions can continue to drag on for years.  More in the article below.

http://brucewilds.blogspot.com/2014/04/inflation-seed-of-economic-chaos....

Thu, 07/17/2014 - 07:12 | 4966516 AdvancingTime
AdvancingTime's picture

We may soon be forced to face our economic Armageddon. The forces that have driven stock markets ever-higher and upward may be beginning to wane. Many markets became distorted years ago when QE and super low interest rates hit the economy in an effort to lessen many of the missteps of recent years.

This has been more helpful in holding up the underlying value of assets and derivatives it now appears than helping to repair a wounded economy. QE has up to now stopped an implosion of derivatives including the resulting contagion and shock that would have spread throughout the financial system. Unfortunately the economy has not fared as well as these asset prices and in many ways these policies have harmed Main Street. More on this subject in the article below.

http://brucewilds.blogspot.com/2014/05/facing-our-economic-armageddon.ht...

Thu, 07/17/2014 - 09:00 | 4966837 gcjohns1971
gcjohns1971's picture

People talk about "the forces leading the market higher" as though they are mysterious.

They are not.

And people talk about how they will ride out 'the storm' in stocks of strong businesses - or that the strength of those businesses may substantially mitigate the consequences of past bad policy.  People are left with the impression that a debt default, then, is all we need concern ourselves with - or in their worst nightmares perhaps debt contagion.

But it is actually much worse than that.

We got both the debt and the recession in the first place because of excessive money printing.  The Fed's response has been to expand the same in an unprecedented way.

But what is the actual mechanism?  Why do we need worry even about the companies that seemingly have solid revenue?

It is simple.  And it is inextricably tied to the Government's 100-year-old choice of using a Central Bank as a means of raising revenues they could not raise by direct taxation.

When the Fed prints it is just paper - or digits accordingly.  It is not currency until someone exchanges something of real value for it. 

Making that first exchange leaches a portion of the value out of existing currency and monetary assets.  Those who have the existing currency have it as a result of productive activity.  That value is the seed with with the holder funds the next round of production.

Fed printing takes a portion of that money away from those who produce things people buy voluntarily, and gives it to Primary Dealers and Government, who produce things people must be coerced into taking to various degrees - an anti-economic exchange. 

Those people who receive the new currency have very different purchasing patterns than those from whom the value was taken.  Government will buy armaments, construct real property, provide subsides to businesses who bribe them, and give money away to cronies and favored constituents in return for votes.  Primary Dealers - bankers - will purchase assets, stocks, bonds, McMansions, and luxury goods.

This will increase demand in each of those spaces far beyond the demand that would otherwise exist.  Companies that are in these spaces will expand operations to meet the new demand.  New companies in these spaces will appear.

In the mean time, the productive activities from whom the value was originally stolen suffer.  Their ability to bid for factors of production to renew the production cycle is impaired twice - once from the original theft, and again when prices of certain factors of production are bid higher than they would otherwise be. 

Imagine an auction where someone at the door taxed you for a percentage of your wealth and gave that money to those bidding against you in the auction - that is the effect of money printing on real productive activities.

The longer this goes on the more the 'market' becomes tilted toward those who service the needs of Government and Primary Dealers.  At the same time, real productive activities are choked into bankrupcy.

So when you see a company with solid profits which is not an obvious direct beneficiary of QE, you have to ask yourself whether they service those who are beneficiaries of Fed money printing - or service those who service those who are the beneficiaries.

The reason printing money causes economic contractions is more than just bubble-blowing.   It simply creates unsustainable demand that results in whole sectors of the economy that can't exist in the absence of the redistribution. 

There's no sure-fire way to tell which companies' businesses are based on servicing Fed-generated demand.  But in a currency collapse, or cessation of money printing for any reason, those companies, industries and sectors will be decimated or cease to exist entirely.

And no one knows how much 'real economy' still survives within the caverns of unsustainable Fed-induced activities.  But it is obvious that the longer the CB is in operation, the less real economy will remain.

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