With the B in CNBC now officially standing for "Bitcoin", it was inevitable that Stanley Druckenmiller, the CEO of the Duquesne family office would immediately get a question about the soaring cryptocurrency during his Tuesday interview with Kelly Evans, whose explosive price the Dusquesne asset manager attributed - just like Citi did back in June - to capital misallocation, and hence bubbles, created by central banks.
Druckenmiller: If you took the taylor rule a normal interest rate given our economic circumstances would be 4% interestingly. We’re at 1%. In europe, it would be 2%. They’re at minus 40%. In sweden, it would be 3.75%. They’re at minus 50%. That doesn’t even count the bond buying we’re talking. But this is all in the name of this 2% inflation target.
Evans: if they’re keeping rates in this country, you know, barely above zero, in other countries, below zero, what are the consequences of all of this?
Druckenmiller: well the consequences are huge because we’ve distorted market signals and we’re causing all sorts of what i would call misallocation of resources.
Evans: Like bitcoin? or is that unrelated?
Druckenmiller: No, it’s not unrelated at all. Bitcoin, art, wine, equities, credit, you name it. everything is one way up and there are huge distortions taking place, and it’s all in the name of this 2% inflation target. And when you get a misallocation of resources, it really hinders growth over the longer term.
For those who may not remember, Citi laid out very much the same half a year ago, pointing out that facilitating the recovery is coming at an increasingly higher cost to the future, in terms of real estate, crypto and even old car asset bubbles.
Back to Bitcoin: when asked by Kelly Evans if he owns any, Druckenmiller responds "no", and adds that "obviously as a trader I should have, but I only trade what i know. What I do know is it takes the same amount of energy to do one bitcoin transaction that it takes to power nine homes in the US. By 2019 it’ll take up half the energy in the united states to run the bitcoin network"
And then this humorous tangent on bitcoin fanatics and fake liberal concern about the climate: "I find it interesting that most people in bitcoin are climate people. They’re west coast people. I don’t quite get the connection. We’ve got this rogue currency that we’re all going to support that is destroying the climate in some extent, but whatever."
Undeterred, Evans tried to get an explicit answer from Druckenmiller on his bitcoin price target, however unlike Novogratz, Druck was relentless. Here is his response to whether bitcoin is the greatest bubble ever seen, something which at least in historical terms...
... now appears to be the case:
"i don’t know whether it’s the greatest [bubble] we’ve ever experienced. Look bitcoin is like anything else, it’s worth what people are willing to pay for it. And right now people are willing to pay -- i haven’t looked in the last five minutes so it could have varied – but let’s say they’re willing to pay $17,000. That’s what it’s worth. The tulips were worth what people were paying that for them. Gold is what it’s worth. What I do know about bitcoin is the concept that it could ever be a medium of exchange has been eliminated because you can’t do transactions, particularly retail transactions with something with this kind of volatility. But if people think bitcoin is worth $17,000, that’s what it’s worth today."
Price targets aside, Evans then asked the right question, noting that "there are people that want to hold bitcoin because they’re as critical of the Fed and central banks as you are. So if they agree with your philosophy that central banks are screwing this up then what would be a better way to express that than holding bitcoin?"
His response: "That’s an excellent question. I think at some point figure out when this is going to end and then either get out or go short. Because, by the way, when this ends and it will, i’m talking about this monetary radicalism period we’re in, bitcoin will probably go down with the rest of the stuff."
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Yet while Druckenmiller's insights on bitcoin were notable, what we found especially interesting was the legendary hedge fund manager's recap of his trading and P&L in 2017. We were hardly surprised to learn that - just like everyone else - Druckenmiller also has no idea how to make money in a world dominated by central banks. In fact, as he put it, it's been a "terrible year", and his first down year in currencies ever.
Evans: How has the year been for you?
Druckenmiller: i would have to say it’s probably the worst year i’ve had relative to the set of opportunities out there, i can never recall. I mean, for me, 1997 was close.
Evans: But that was an asian financial crisis.
Druckenmiller: Well, that was pretty good opportunity. I have done very well in stocks. I’ve really, really mistraded macro. It’s going to be -- if it was up to macro, i’d have my first down year but stocks have bailed me out, so barring a miracle, that’s not going to happen.
Evans: but you’re not up 30%?
Druckenmiller: I’m not up anywhere near 30%. i’m not up double digits. You know, I’m having, again, relative to the opportunity set a terrible year, barring a miracle - it’s going to be my first down year in currencies ever.... It's just me just overtrading and being cold at the wrong time and since it’s been my bread and butter for years, I tell you overallocating exposure there relative to equities. Somebody on your network said a week ago all you had to do this year was roll out of bed and you’re going to be up 20% or 30%. apparently i got out of the wrong side of the bed.
Druckenmiller wasn't done, and in the second part of his interview, he lashed out at certain parts of Trump's tax reform, most notably the carried interest provision, which he called "outrageous."
Trump had promised during his campaign that he would eliminate this loophole, saying hedge fund managers were "getting away with murder." But having packed his administration with billionaires and former Wall Street executives, the promise was quickly forgotten as the finance industry pressed hard to preserve carried interest.
As a result, Druckenmiller said the tax proposal is unfair to doctors and lawyers in states where taxes will go up dramatically, while "you have these multi, multi billionaires—with carve outs—let's be clear. Carried interest...you're making money on somebody else's capital. It's not on your own. If that's not income, I don't know what is."
"First of all, the billionaires lobbying the Congressmen for this oughta be ashamed of themselves because we're asking doctors and lawyers and other Americans in blue states to take tax increases so we can fund this kinda nonsense," Druckenmiller told Kelly Evans. Asked whether it would be enough to entice him back to the business, Druckenmiller, an avid golfer, said no, "partly 'cause I keep missing putts."