Just six months ago, Stanley Druckenmiller saw nothing but pain for the economy: in a presentation to the Sohn Conference in early May, the legendary Duquesne manager delivered what may have been his most bearish fire and brimstone sermon yet, and in fact according to some buysiders who were present, its somber mood and lack of faux optimism was downright apocalyptic. Druckenmiller said that while the Fed and policymakers have no endgame, markets do - hinting that one is rapidly approaching - and suggested that everyone should liquidate their equity holdings and buy a certain 5000 year old shiny asset, which as we reported previously, is Druckenmiller's "largest currency allocation."
The caption in the following chart from his presentation summarized it best:
What a difference half a year makes... and one Donald Trump presidency
Speaking to CNBC this morning on the topic of the post-Trump election economy, Stanley Druckenmiller appears to have flipped his entire worldview, and said that he is now "quite, quite optimistic" on the U.S. economy, following the election of President-elect Donald Trump. "It's as hopeful as I've been in a long time."
But even more notable was his statement that he is no longer a gold bug: "I sold all my gold on the night of the election." Why? Because as he added “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.
As a result of the Trump presidency, Druckenmiller said he now has a “large bet on economic growth. I’m short bonds, Bunds, Italian bonds, U.S. bonds.” The trade reflect his expectation of higher deficits, stronger growth. In other words, another surge in debt.
He added that he is “hopeful” on the Trump administration and political climate. “I would not be surprised if we’re looking at the absolute peak of divisiveness.” Druckenmiller said that he was hoping economic policy is deferred to Pence and Ryan. “Ryan’s got a plan called ‘A Better Way.’ It’s a specific plan on deregulation, on how to replace - not just get rid of Obamacare. It’s got tax reform in there."
Druckenmiller added that he believes the Trans-Pacific Partnership free trade deal, opposed by Trump, is good for business, however he conceded that Trump's anti-globalist agenda will likely prevent it, and is will to accept that compromise.
Curiously, despite his renewed hope in the world as a result of the Trump presidency, Druckenmiller had supported John Kasich for the Republican nomination, calling the Ohio governor the best establishment alternative to Trump.
As we said yesterday, overall we believe that Druck is right, and the upcoming fresh burst of debt, and higher rates, is what will provide the impetus for fresh gains in stocks and the economy, even as it leads to massive losses for global bond investors. The problem, however, is just how higher rates will impact overall debt service: as we also reported several weeks ago, it is another legendary investors, Bridgewater's Ray Dalio, who warned that a jump in yields at a time of record global debt will not only lead to massive losses across all asset classes, not just bonds, but also lead to another economic contraction.
We look forward to finding out which of the two investing titans is right.
Druckenmiller's full interview is below.