Druckenmiller Joins Gundlach In Predicting 6% Yields; Expects Market Correction As Rates Rise

Tyler Durden's picture

We previously reported on Druckenmiller's sudden and dramatic U-turn in outlook following the Donald Trump presidential victory, when on November 10, the legendary Duquesne manager said that he is now "as hopeful as I've been in a long time", and to validate his belief, he said that "I sold all my gold on the night of the election" because “all the reasons I owned it for the last couple of years seem to be ending", first and foremost his expectations that inflation is now set to spike, forcing money out of safe assets - like gold and Treasuries - and into the US Dollar.

Druckenmiller became an overnight bull on hopes the Trump administration would unleash a fiscal stimulus-based  period of growth for the economy, with a a “large bet on economic growth." He also told CNBC that "I’m short bonds, Bunds, Italian bonds, U.S. bonds” a reflection of his expectation of higher deficits and stronger growth.

Fast forward to today, when Stan Druckenmiller spoke at the Robin Hood Investors Conference in Brooklyn, repeated he is bullish on the American economy following the U.S. election, and anticipates a much stronger dollar and higher bond yields. Druckenmiller joined Jeff Gundlach in predicting that US 10Y yields may rise to 6% over the next year or two, while the euro could weaken far below parity and drop to 82 cents against the dollar. He’s also short the yen, European, Japanese bonds and also gilts.

Speaking at the conference, Druckenmiller said that he had been short the market heading into the election, expecting a Clinton victory and was prepared to short more had the market rallied "based on the quagmire of no options left after the eight year-old experiment of low rates." However, he immediately went long on the Trump win on expectations of lower taxes and deregulation. Druck also said that Trump - of whom he is not a fan but is a fan of
Paul Ryan with whom Mike Pence is close - is expected to cut individual
and corporate taxes.

In short: the entire thesis changed overnight upon Trump's victory, which also led to Drucknemiller's liquidation of his gold holdings.

Druckenmiller quoted Larry Lindsey, who expects US GDP to rise as much as 6% by 2019, and expects the yield on the 10Y to correlate with that. He noted that the fair value of the 10Y Treasury is around 3%.

At this point he echoed the warning made just last night by Goldman Sachs, according to which a 10Y above 2.75% would put pressure on stocks, and said that if the 10Y rose to 3%, the S&P could see a 10% correction, but warned that the market could correct well prior to that in anticipation.

He then went on to bash Japan, whose debt-to-GDP he defined as "crazy", slammed the BOJ's monetary policy (accusing it of tightening on deflation and easing on strength). He also was far less sanguine about the fate of the Euro zone, and predicted that within 10 years the EU would break up.

Druckenmiller also noted that he is optimistic that the "rigged volatility" period of the last several years has finally ended, a transition which would be beneficial for hedge funds and concluded by casually telling the audiences that his returns in 2016 were in the low teens.

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LawsofPhysics's picture

The great thing about "mark to fantasy" accounting is you can make your balance sheet be whatever you want it to be.

Regardess, the casino is still open gentlemen, place your bets.

 This guy stinks of fear.

thesonandheir's picture

82 cents for a euro :D

 

This guy needs to put the crack pipe down now.

 

You could kiss bye bye to any US manufacturing after that one.

 

Euro will be 1.25 next year.

Muh Raf's picture

What a load of b*ll*cks. What kind of dimwit believes that there is some kind of correlation between GDP growth and either the base rate or the 10 year rate? That is so 1970s and so totally wrong. Just like the stupid belief that rates can't go negative. No sirree, that's just unpossible, for rates to go negative.

Paul Kersey's picture

6% would totally destroy cap rate and cause a commercial and residential real estate implosion would make the 2008 subprime RE crash look like the good old days. There would be nothing left of the Main Street economy but ashes.

CorporateCongress's picture

Also don't forget the carry of the 20+ trln debt balloon.

FGH's picture

Did Drukenmiller just confirm that this rally has been a gigantic short squeeze?

 

The Saint's picture
The Saint (not verified) FGH Nov 29, 2016 8:18 PM

Tyler, I think you are spelling his last name wrong.  Surely it is spelled DRUNKENMILLER.

 

evoila's picture

I agree with this; as you can't have 6% GDP growth and a strong dollar given all the debt, however the EUR will test its all-time lows, which is well below parity.

gatorengineer's picture

The guy needs to but the crack pipe down, I agree....

4 percent on the 10 year and about a third of the homes in this country will be signficantly underwater on their mortgages due to the price correction that it will forestall.

Kiss US manufacturing  goodbye?  what the hell do we produce and sell to Eurorpe?  Name one thing.  They dont buy Boeing, and MIC stuff doesnt count.

US Manufacturing has to come back to support the US market, that is the Trump message.

I am a Man I am Forty's picture

" first and foremost his expectations that inflation is now set to spike, forcing money out of safe assets - like gold and Treasuries - and into the US Dollar."

Can somebody please explain the above to me, because I don't think it makes shit for sense.

DogeCoin's picture

It doesn't make sense. He's just talking his book and getting people to sell their gold so he can buy it for lower, whether that's real physical gold or mining shares.

SomethingSomethingDarkSide's picture

Bank of Japan, European Central Bank, and Chinese Central Bank all have economic issues worse than the US'.  They are our major trading partners, so those are the currencies that most affect our own.

Should International Interest Rates Rise, they will act harder and faster, creating a stronger dollar and forcing typical 'Safety Vehicles' downward.

To make everything ass backwards, traders take loans in Yen, Euros, and Yuan then use the proceeds of those loans to purchase US Stocks, knowing that they will be able to sell into a weaker currency and sell out of the transaction with close to risk-less profits [ALCHEMY].

In conclusion: Foreign Central Banks panicking and our own Central Bank making use of the drama create Lower Gold Prices.  Only QE, NIRP, or Jawboning thereof will create a Lower Dollar.

1777's picture

The globalist are getting run out everywhere, of course rates will rise. Paying no yield vastly assists the gov to spend more, why would they continue that for their political enemy?

NoDebt's picture

Define "enemy".  It may not mean what you think it means in this context.  

Hohum's picture

If the 10 Y UST is 6% in 2019, the MSM will call it the "Greater Recession" and the S & P will be down 60% from today.

wisehiney's picture

Sure drucky.

stawks and bawnds down at the same time?

And none will run to precious?

So full of shit.

Should call you druckenshitwagon.

Rainman's picture

uh yah, 6% brings depression .... some of the most hilarious shit I've read all day.

CJgipper's picture

It may if you're measuring some fake metric.  But if you're me with 200k stacked in cash, it sounds like a decent start to retirement as I pile in and stack SAVINGS like crazy.

Kaiser Sousa's picture

fuck u Stanley DRUNKass...

" i sold all my PAPER Gold...no really i did...."

ArthurDaley-OldieTimeTrader's picture

Kaiser Sousa, can you ask Druckenmiller how the Treasury is going to pay for 6% dividend yield on the new 10year paper as its matured and re-rolled out? If it was all re-issued overnight then that would cost USTreachery $20 Trillion x 6% percentages or = to about $1.2Trillion/annum additional.

I mean AAPL is paying any taxes nor are Google so answer me this how will Trump make the books balance?

Muad'Grumps's picture

I suspect the fed will buy the paper at these rates and rebate the interest back to the Treasury.

Kaiser Sousa's picture

"Kaiser Sousa, can you ask Druckenmiller how the Treasury is going to pay for 6% dividend yield on the new 10year paper as its matured and re-rolled out?"

you know the answer...Overtly default on the existing pile of unpayable and unserviceable debt owed to all its creditors...

or Hyperinflate...

the U.S. Dollar is dead...

ZoroAustrian's picture

Trump's debt-based government spending binge changes everything, right Stan?

Debt-based spending binge has been America's SOP for decades.  Wall Street's still in charge.  And you radically flip-flopped based on what exactly?

What an ass.

1777's picture

It sorta makes sense if you follow the current loon logic. The government spending party is over making things harder for Trump, thats bonds down and yield up. That will tank stawks which will be blamed on Trump and the dollar will begin to make money causing an even stronger dollar. Gold and silver monkey hammered until the long term financial magic is over....

This is my sense but I have nothing at stake in this fraud.

Yen Cross's picture

  Wrong,,, Lack of .gov spending would cause equities to sell off and more $ into Treasuries as a safe haven play. The yields would move much lower and after initially flowing into the $usd would look for more attractive yields elsewhere. [gold silver] 

 We all know the .gov isn't going to stop printing though. ;-D

1777's picture

I think we are going to see central banks step back and the media will play the blame game. This is a tough call though....

s2man's picture

i always think it says, DrunkenMiller and i go,  you talking annoy about me?

jamesmmu's picture

OMG, volumn is just as low as this summer. So wall st just not trade anymore? 

buzzsaw99's picture

6% on the usa 10Y when pigs fly druckwagon.

1777's picture

That's right! I forgot, 6% yield would hammer the gov budget, not gonna happen! I was trying to figure out the bond angle with Trump in the W/H...

buzzsaw99's picture

Once you eliminate the impossible...

DirtySanchez's picture

If this is the case, the US Treasury should immediately auction 100 and 200 year US Bonds before the 10yr yields spike to 6% or higher.

We could conceivably refinance our multiple trillion dollar debt at 2% with a 100+ year maturity.

By that time, hopefully someone smarter than what we have now will figure out how to refinance the multiple gazzillion dollar debacle they will face.

Seasmoke's picture

The Tribe sure loves the USD all of a sudden. Should be great news for physical Gold.

1777's picture

So the central banks remain in the drivers seat and its spend, spend and spend!

 

dryoyi's picture

This fake bankster believes that the Insolvent states of America can pay 6 % on treasuries

Is he an idiot, or a big liar ??

6 % on 20 trillion, is 1.2 trillion a year. Good luck, Mr . Drunk- miller

1777's picture

I got it, thanks guys! No bullshit passes at ZH, again thx. 

Rates HAVE to stay low or our .gov buddies start to 'feel the pain' which we know ain't gonna happen.

 

aVileRat's picture

You tend to forget this thing called M1 expansion. 6% is the Fed (lagged by  8 to 12 months) expectation of real interest rate expectations. Before posting to a finance blog, you should brush up on that CFA 1 level shit.Your pinning your expectation that 20T in 2015 purchasing power is going to be equal to 20T in 2020 PPP.

If Donald is going to pump at least 1T a year into fiscal projects, and you have a 3 to 1 wealth multiplier, what will be the NRU job gains and inflation expectations next spring ? When you crunch the math, you will find Stan is not too far off base.

 

CorporateCongress's picture

Not like the debt will still be 20T in 2020 either. Also really com'on, What does the FED know?

Demographics and reduced access to easy resoures will prevent any sustainable growth beyond mediocre

onwisconsinbadger's picture

But Mr. Drumpf will fix everything. He is going to make america great again. Print baby, print. Debt goes to $25 trillion, 6% is $1.5 trillion interest. Never.

taketheredpill's picture

 

 

Below trend growth is baked in the cake, thanks to massive debt overhang.

Debt/GDP US < EU < japan

CPI US > EU > Japan

If you want to see where the US is going look at what BoJ did almost exactly 10 years ago.  2 hikes...then ZIRP.

 

Trump can't be Reagan because if he cranks the Debt up then Debt/GDP will be higher than Japan.  Hows that working out?

 

 

quasi_verbatim's picture

Post New-Normal must give way to New Paradigm. 6% is good.

Don Sunset's picture

Inflation in 2 things is killing growth.  Housing and health costs/insurance.  The negative effects of these inflated costs are just ramping up and will kill the economy and nothing can be done about w/o also killing the economy.  It's all down hill!

Economic performance can be measured in the gross national debt.

In.Sip.ient's picture

"inflation is now set to spike,
forcing money out of safe assets -
like gold and Treasuries -
and into the US Dollar. "

!
Errmmm... The New New Normal???
Funny Money economics at its best?

How is the US$ "safe" when your
calling for inflation... presumably
in self same US$ terms???

wonger's picture

Ww3 sets off financial collapse, they get their global currency and global army, old stan the drunk is correct, 6% yields here we come, just make sure you get your physical precious metals after this sell off, im short gold, but the time will come when i will transfer 50% of cash into physical precious metals, maybe more  

Kirk2NCC1701's picture

I observe that his views (and those of all people like him), are DYNAMIC and MULTI-VARIABLE.

The views of most libertarians and ZHers seem STATIC and SIMPLISTIC.

To use a historic analogy... the Static positions of libertarians is like the Maginot Line if the French.  The German Army (Wehrmacht) decided to defeat the "Invincible" defense, by going around it. Theirs was Dynamic thinking, compared to the French Static thinking.

The proof us always in the results.  Which explains why Dreckmiller is "richer than you are", any why he's richer than the Tylers.

BTW, I came to the same conclusion as Stanley, but regret that I drank too much PM Hopium to have sold my PM like he did. Had you or I sold that evening and bought stocks when the market first dipped by 800 ponts, you or I would be sitting pretty.  We even could have taken the stock profits and used them to buy cheap PM.

Could've, would've, should've.  Another painful example that DYNAMIC ALLOCATORS can make good money, even w/o using HFT. Use your noggin, not your static preconceptions.

But hey, "If you like your Maginot bunker, keep your Maginot bunker."  I'm not the "hunker in the bunker" type.  (Which is why I never joined the military. Like Dick Cheney, "I had better things to do".  But to each his own.)

Stormtrooper's picture

Let's see.  Economics 101.  Dollar goes up.  US products more expensive.  Foreign buyers purchase fewer US goods.  The current Depression continues to worsen.  Higher interest rates?  How about negative interest rates as a last ditch and final effort to save the US economy before the Great Reset.  How do guys like DrunkenMiller stay in business?

ExpertiseAsia's picture

Well, we will have to see about. Super bull cycles don't get killed off this easily. Asia morning commentary here

antidisestablishmentarianismishness's picture

As usual, the geniuses on ZH have all the answers while one of the most successful hedge fund mgrs in history is an ignorant fool by comparison.  Mind you, these are the same geniuses who've been completely wrong about the market since green shoots appeared 7.5 years ago.