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.