A Very Bearish Stanley Druckenmiller Blows Up At The Fed; Reveals His Biggest "Currency" Position

Tyler Durden's picture

If anyone had wondered if Stanley Druckenmiller's recent bearishness had dissipated, or transformed into at least modest bullishness as a result of the market meltup, we have bad news.

Moments ago at the Sohn Conference, Druckenmiller raged at the Federal Reserve's dire monetary policies, saying that low interest rates have caused an environment where "not a week goes by without someone extolling the virtues of the equity market."  The obsession with short term stimulus contrasts with the monetary reform of 80's which led to the bull market, he added. 

The Fed bashing continued when Druck said that "by most objective measures, we are deep into the longest period ever of excessively easy monetary policies. Despite finally ending QE, the Fed’s radical dovishness continues today. By most objective measures, we are deep into the longest period ever of excessively easy monetary policies. In other words, and quite ironically, this is the least ‘data dependent’ Fed we have had in history."

Wrong: this is the most data-dependent Fed ever, only the data is the daily level of the Dow Jones Industrial Average; this is also why as Druckenmiller added, the Fed "causes reckless behavior" and added that "the Fed has no endgame and the end objective seems to be preventing the S&P from having a 20% decline."

"Three years ago on this stage I criticized the rationale of Fed policy but drew a bullish intermediate conclusion as the weight of the evidence suggested the tidal wave of central bank money worldwide would still propel financial assets higher. I now feel the weight of the evidence has shifted the other way; higher valuations, three more years of unproductive corporate behavior, limits to further easing and excessive borrowing from the future suggest that the bull market is exhausting itself."

Repeating something else we have long said, Druckenmiller also correctly said that as a result of the Fed's permissive policies (who can ever forget Chuck Schumer statement to Ben Bernanke: "Get to work, Mr Chairman") means politicians can avoid things like tax reform. Or pretty much anything else.

However, the Fed's action is not without a cost, as "the fed has borrowed from future consumption more than ever before."

He then noted that he is just as concerned about China, also correctly observing that the local "zombie lending" simply can't stop, and adding that Chinese people don't need more debt and houses. Which is true, however when debt and houses are merely financialized instruments, then all is well. 

If it wasn't clear already, Drucknemiller is very bearish stocks: "volatility in global equity markets over the past year, which often precedes a major trend change, suggests that their risk/reward is negative without substantially lower prices and/or structural reform. Don’t hold your breath for the latter."

The former Duquesne hedge fund manager, who averaged annual returns of 30 percent from 1986 through 2010, also agreed that negative rates are "absurd", said that he is bearish stocks, and concluded by revealing what his biggest currency allocation is. "Some regard it as a metal, we regard it as a currency and it remains our largest currency allocation" he said, without naming the metal.

We know what he was talking about. Gold.

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Theonewhoknows's picture
Theonewhoknows (not verified) May 4, 2016 2:20 PM

Gold does great in times of political and economic turbulence and its price has to rise especially due to recent rigging scandal http://independenttrader.org/deutsche-bank-admits-rigging-metals-market.html
But, playing a bear against central banks may be very hard, on the other hand, prolonging this bingeing on QE-driven bubbles equals meeting a wall sooner or later. Especially that smart money is already evacuating http://independenttrader.org/is-time-to-short-already-here.html 

knukles's picture

Pet Rocks?  Who said the Reptilians have no sense of humor?  Or replicators.

Pinto Currency's picture

Gold is money not a currency.

There is a big difference.

Mountainview's picture

Total existing Gold is estimated at 150000 tons of Gold worldwide (size of about an olympic swimming pool). Value at current prices $ 6 Trillion. In other terms nothing, compared to existing debt

ClydeCrashcup's picture

And your point being what?

The fact is that most of that debt is simply fantasy, and will vaporize during the coming reset.  The same as it always happens during bankruptcies.

Actually, you do inadvertently make a good point: the amount of outstanding debt has grown, astronomically and disastrously, beyond all realistic restraints or relationship to the actual, real economy. 

Mountainview's picture

Whatever your figure for total debt is, if you express this debt in gold (150000 tons = total debt) you end up with a gold price at a multiple of todays market price.

ClydeCrashcup's picture

You are making one phenomenally big, and erroneous, assumption in doing so however: that being that ALL of that debt should be, and can possibly be, backed by anything.  If you're willing to be realistic and honest with yourself, you would realize that the vast majority of it is going to simply vanish like a fart in the wind.

Craptain Pimpcrash's picture

Of course, there's the huge elephant in the room you both ignore:

 

Gold's price is entirely subjective. Arbitrary. That is to say, gold prices the currency, so really, it matters not how much stock there is. What matters is the flow of that stock.

Squid-puppets a-go-go's picture

lol love ur avatar

The other error is to presume a gold reprice will be used to settle 100% of debt. Not everyone who holds debt holds gold, so it'll never work out like that, as a clean slate.  Its also more likely they will only reset it enough to 'stabilise the system' - i.e. govt debt and major banks debt - and that at a settlement of maybe around 40% reduction of debt, but enough to unclog the system.

Even that implies around $20 000/oz, though. 

ClydeCrashcup's picture

You mean, we can't stand a weak half-black figurehead (and his transexual 'wife') in the White House, right?  And you'd be perfectly correct!

PN7's picture

I had to upvote you.  Had me laughing out loud.  Cracked me up.  Thanks.

damicol's picture

I am not racist, but I sure as hell am specist,

And that shit stained filthy piece of faggotry that's a fucking Kenyan monkey/nigger hybrid abortion is NOT the same species as me.

 

Now fuck off get your knee pads and get back to work you fucking  little cocksucker

 

 

Mountainview's picture

Right so. 1/3 of the gold stock is in jewellry, 1/4 in industrial use, 1/4 in central bank reserves and funds; so not much left for the physical bullion market. What is considered the gold market is essentially the paper gold market including futures and derivatives. As someone mentionned debt is covered by not much. So if you are on the lenders side, better to call your claim early and keep your asset in physical gold, farmland or firearms.

teslaberry's picture

yes this is precisely why people who call gold 'money' and currnecy 'not money' and then claim gold is to be valued on a currency basis as a number fundamentally don't understand how to separate economic function from finance. 

 

gold is worth oil, facotreis, land and everything OTHER than the numerical amount of paper numbered amounts denominated in various 'currencies'. 

 

you may as well say gold is worth a trillion dollars blablaabla. after a currency event caused by a debt implosion ------the result is that the numbers change in an almost meaningless fashion. what doesn't change is people need to eat now, they need shelter, armies need food transport and weaponry. old people need pensions food and medicine or they die sooner. babies need mothers. 

industrialized nations need facotries , power, utilities, roads, gas, coal, etc..........

these things relate to the value of something that is not a promise only in so far as people exchange them freely for that medium of exchange. in so far as that medium of exchange is not merely a paper promise; it has a more likely reality of being tendered succesfully in return for the things society actually uses to run itself. 

when things get good and back to normal, people will have forgotten the previous over-issuance of debt, and then begin once again overleveraging everything to the hilt. it happens again and again in history. it's a systemic feature of the human termite mound system.

goldsansstandard's picture

The Eastern Roman Empire, aka Constantinople , maintained gold as money. For a thousand years or so. Prices and prosperity were perhaps more stable than a world coated in a slimy, cocaine contaminated film of fiat.

Mountainview's picture

From crisis to crisis; I read this written by a writer called Karl Marx

deflator's picture

Most of the debt is government debt. Probably more than 100T of debt floating around for developed countries. Probably another Quadrillion worth of debt in the form of derivatives(of that debt). That 100T worth of debt is COLLATERAL for the derivatives.

Probably a good bit of it is in the form of U.S. treasuries of some flavor.

 There may be a difference in these derivatives and the ones associated with home loans. May be wishful thinking that governments will allow their debt to fail without force of war.

 

 As far as (the debt) vanishing like a fart in the wind... more like it would be the imagery of a mushroom cloud.

 

Gazooks's picture

cloud(s)

 

many, I fear

Space Animatoltipap's picture

No, the effect of the vanishing of debt will be the total destruction of the current, most dark, WW "money" system. Indeed, faith in it will totally dis-appear. 

Singelguy's picture

The important question is, where did all freshly printed money that created all that debt go to? Most of it went into inflating paper asset values while the remainder went to funding government deficits which in turn went into consumption through social welfare programs or destruction in the form of war.

When the reset comes, all that debt will be written off and paper assets will suffer the biggest losses.

SuperRay's picture

I don't get why nobody ever points out the incredible criminality of the Rothschilds, the City of London, and their control of CBs around the world. Strike at the root, not the branch. Hate those fuckers

SidSays's picture

Better to have one striking at the roots than 1000s striking at the branches.

(or words to that effect)

quintago's picture

well yeah no shit. when you print endless amounts of debt, you can't afford to have a meltdown that will lead to deflation, because that is just going to create a spiral down into hell. It's pretty basic that it becomes increasingly difficult to carry a debt load in a deflationary environment.

robertsgt40's picture

Tyler, gold isn't the only metal.

Ness.'s picture

Ag.  If you haven't already.. read this.  Keep stacking.

http://geology.com/articles/uses-of-silver/

new game's picture

drill holes at the base and add salt; that kills the tree every time...

Withdrawn Sanction's picture

"Total existing Gold is estimated at 150000 tons of Gold worldwide (size of about an olympic swimming pool). Value at current prices $ 6 Trillion."

And therein lie 2 keys:  (1) current gold prices will move up relative to debt to restore better balance between the two, and/or (2) debt prices will move down to restore some semblance of balance.  The first implies inflation, the second deflation.  Choose.

38BWD22's picture

 

 

Everybody should own some gold.  How much?  Of course that depends on each person's situation.

Here is a quick guideline for ZH-ers (more knowledgeable than "average"):

If you have some savings and a net positive worth, consider putting 5% - 20% of your net assets into gold and/or gold & other PMs (physical PMs only).

Latitude25's picture

Invest in pms according to what you see to be the likelihood of a fiat failure and of course your net worth.

SidSays's picture

All fiat currencies return to their intrinsic value in time.

El Dorado's picture

PM's are the only reason I have a positive net worth. Trust me debt reduction is on my short list too but getting an engineering degree these days wasn't cheap.

new game's picture

at least you have a degree worth something, kudos to you. signed, son of an engineer...

slavador's picture

All non-PM assets should be fully leveraged to raise cash. Physical Gold should be purchased with this and hidden. When gold runs to 10K retire very wealthy.

Scuba Steve's picture

IMO, the cat is out of the bag and Druckenmiller knows it.

The common man is going to get more and more educated on currencies, IMF SDR's, pension fund holdings, etc.

It has come down to that for survival and asset sustainablility, and the information is getting more readily available.

GunnerySgtHartman's picture

A small number of the 'common men' will see what's going to happen with fiat currencies, etc. and take appropriate actions to mitigate their negative effects - ZHers are one such example.

The rest have their heads in their phones pounding out Facebook messages, tweets, and Snapchats, and they will remain totally oblivious to what's going on ... until it is too late.

I plan on not just surviving, but thriving in the coming crash.

assistedliving's picture

Druckenmiller ends with saying that gold is his biggest currency allocation. As you might have guessed, he's bearish stocks

The former Duquesne hedge fund manager also agreed that negative rates are "absurd", said that he is bearish stocks, and concluded by revealing what his biggest currency allocation is.  Gold.

i think you said that twice

Mini-Me's picture

The Fed can't print gold.  That's all you need to know.

J Mahoney's picture

True---but---they and all their co-conspirators can naked short the hell out of it ---ie their success the past 5 years --- I believe you, but I also believe the old saying "You cant fight the FED"

tarsubil's picture

You can't out trade the fed. You can take delivery of gold and silver which will fight and undermine them despite all their efforts.

Scuba Steve's picture

But the "Long enough timeline thingy" and that naked-shorting is going to be a friction between Metals exchanges IMO ...

I mean how long do you short it? until 100 years of Physical Gold Mining is bought up by buyers wanting the physical.

IMO, there is a definite limit as the world peoples get more asset rich. 

Mr. Bones's picture

They can naked short paper, which will only work until someone tries to take delivery and can't.

new game's picture

and why doesn't that happen? we all know the ratio is off the charts, yet it doesn't happen.

just askin...

RichardParker's picture

There's a very simple way to know if a currency is overvalued. If its currency zone is running a persistent trade deficit, the currency is overvalued...

http://fofoa.blogspot.com/2014/08/dirty-float.html

knukles's picture

Wish they'd invite me (all expenses paid) to one of these belly rubs (Gotta have a lotta good eats)
Hell, I'd show up in a Yellow Cab plastic hat, short sleeve white shirt, black rubber bow tie, cutoffs and gorilla leggings with scuffed work boots if they wanted me to!

Farmer Joe in Brooklyn's picture

You can certainly come to one of my parties..!!