Big-Tech, Bonds, & Bullion Battered As Billionaire Druckenmiller Warns "More Shoes To Drop"
Another quiet day on the macro side in the US, though Gasoline and Distillates inventory builds hinted at a lack of demand. US mortgage apps fell for the 4th week in a row. Most notably, the US trade gap widened to its largest in six months (as overnight saw China exports collapse).
The Bank of Canada surprised with a 25bps hike (which also pushed Fed rate-hike expectations higher). While expectations remain low for June (32%), that 'pause' is expected to be only for a month with July pricing around a 85-90% chance of a 25bps hike by then...
Source: Bloomberg
Nevertheless, it was a violent day across asset-classes, and rightly so as billionaire Stan Druckenmiller told Bloomberg's Invest Conference that "this is the most complicated non-roadmap, unanalyzable situation I've ever seen in terms of having a lot of confidence in an economic prediction going forward... I just don't see a fat pitch right now."
He added:
"I think my record is as much knowing not when to play as when to play and because I deal in five or six different asset classes, I've had the luxury, if there's uncertainty in equities, usually that's a good time for bonds and currencies.
They're doing crazy things when the world's blowing up. So there's a lot of volatility there."
He was positive on one thing:
"Unlike crypto, I think AI is real... If [AI is] as big as I think it is, Nvidia is something we're going to want to own for at least two or three years. Not for 10 months,” the founder of Duquesne Family Office said.
"I actually think there is a very very real possibility and could be every bit as impactful as the internet literally going forward. And it could be a beautiful opportunity in a hard landing, just like in 01, 02 were a beautiful opportunity when the tech bubble burst, going forward for companies who have benefited from the internet, AI could be there... My firm has only been able to participate in AI by owning Nvidia and Microsoft"
But - and perhaps reflecting on the recent volatility (and apparently blind buying panic), Druck concluded:
"Our central case is there's more shoes to drop, particularly in addition to the asset markets economically."
Here's the full interview:
And sure enough, today was Nasdaq's worst day since mid-April (all of a sudden long-duration stocks care about soaring rates). Biggest single-day outperformance of Russell 2000 over Nasdaq since early March 2021, and biggest 4-day outperformance since Nov 2020. The S&P was marginally lower and Dow marginally higher...
The last few days have seen Small Caps up 7% and Nasdaq down 1%...
Some notable 0-DTE action today as Nasdaq options traders attempted to ignite another leg higher...but failed...
0-DTE traders were actively buying puts today as the Russell 2000 soared (call action was very limited)...
Just as we warned last week, it appears the peak of the QQQ/RTY bubble has been reached...
Source: Bloomberg
Regional bank stocks continued their charge higher...
Despite the down-tape, TSLA rallied for the ninth straight day (longest streak since 2021) and up 13 of the last 15 days) to its highest since Nov 2022...
Goldman noted that 'soft landing' narrative is making a comeback as signaled by the very recent break-out of their 'soft-landing' basket:
Source: Bloomberg
Which is interesting because Druckenmiller remains steadfast in his view that the US economy will suffer a hard landing, but has pushed his timing off to the end of the year:
"A lot of people - because we haven't had an economic decline start yet - have changed their forecast from a hard landing to a soft landing, and a lot of others have changed it from soft landing to no landing. I haven't changed mine at all.
The fact that it hasn't happened yet doesn't change the probability if it does happen of the depth of it...
So to me, the probabilities haven't changed. It's been pushed out relative to expectations, but in no way does the fact that it hasn't started yet, change the probability of whether it's gonna be hard or soft.
I would actually argue since it's taken so long, the Fed has ended up with a higher terminal rate. And in fact, inflation gets stickier the longer it stays in the system and that it increases, not decreases, the probability of a hard landing..."
One more thing before we move on to the bloodbath in bond-land. It appears - as we noted above - tech stocks are suddenly waking up to the reality of tighter financial conditions...
Source: Bloomberg
Treasuries were clubbed like a baby seal today with the belly underperforming (but all up 10-13bps)...
Source: Bloomberg
The 10Y Yield rose to 3.80% resistance and stalled...
Source: Bloomberg
The dollar roller-coastered today, dumping overnight (and into the US day session) to test the pre-payrolls levels from Friday, before ripping back higher to unchanged...
Source: Bloomberg
The Chinese yuan hit a fresh 2023 low against the dollar...
Source: Bloomberg
The decline in the yuan follows Druckenmiller's comments:
I was in love with China until about six or seven years ago. You go over there and the energy in Shanghai was like New York on crack. It's just fantastic energy. The entrepreneurs were exciting, they were into it. And then Xi Jinping did his thing. And if you look at China and the rise of China, I think it all happened.
You had this internal capitalist system. There were a bunch of people that act like crazy New Yorkers building new businesses in a dynamic economy. But he has proved he's not a capitalist. He's definitely not a monopolist. There's only room for one monopolist in China. In his mind, that's him. Anybody that gets their heads stuck up and I honestly think he either doesn't understand why China grew and succeeded the way they did, or frankly, he doesn't care because in terms of staying in power, but I would be looking out 10 or 15 years. I just don't see it. I, unless there's a change in power there at the top I think that's gonna be a very non-dynamic economy. It's not so much the geopolitical concerns. I will say this, that if I'm right, it makes me more fearful of military action, because that's when dictators become more dangerous, is when they've gotta divert attention from the immediate problem. So what they're doing now is very stimulative. We're expecting a sugar high in some kind of robust growth there, maybe for six to nine months.
But looking out, I do not look at them as a big challenge in the United States in terms of economic power and growth.
The Turkish Lira utterly collapsed today to over 23/USD (a new record low)...
Source: Bloomberg
Gold was slammed back lower today, erasing Monday's gains...
Oil prices extended gains today - after a small crude draw (and another SPR drain) - with WTI back above pre-Saudi-production-cut levels...
Finally, we give the last word back to Stan Druckenmiller who cautioned: "There are definitely lessons to be learned [from the Dot Com bubble]. Don't get emotional, don't get crazy."
And judging by the reversal off those dotcom highs, investors are unemotionally stepping away. Who could have seen that coming?
