There are very few money managers (let alone retired ones) who are always worth listening to. Stanley Druckenmiller is one of them. Because of his track record — 30% average compound returns over 30-plus years, with no losing years — Druckenmiller is like Babe Ruth and Joe DiMaggio combined.
What’s more, Druckenmiller earned his incredible track record managing many billions of dollars rather than small sums. (It is normally much harder to book stellar returns on a large asset base.)
Druckenmiller also made more in bear markets than bull markets over the years, a truly rare feat. Profiting from crisis events is one of his specialties, though he is also happy to be long.
As head manager of the Quantum Fund for many years, Druckenmiller was also the man behind many of George Soros’ greatest trades — like the currency play that earned more than $1 billion in a single day in 1992.
Soros was nicknamed “the man who broke the Bank of England” as a result of that trade — a bearish bet on the British pound — but the idea was actually Druckenmiller’s.
Druckenmiller rarely gives speeches and almost never appears on cable news. That makes it a rare treat when he decides to publicly share his thoughts.
A week before Christmas, Druckenmiller sat down with Eric Schatzker of Bloomberg for an extended end-of-year discussion and 2020 outlook. You can see the Bloomberg article and interview here.
Because Druckenmiller is such a legend — and still sharp as a razor while running his own billions — some of the key points are worth discussing.
When asked about his view heading into 2020, Druckenmiller essentially said broad market conditions were making him bullish by default.
“Well, you have very low unemployment here. You have fiscal stimulus in Japan,” he said. “You have fiscal stimulus and a lot of confidence coming to Britain. We’re running a trillion-dollar deficit at full employment. Apparently, we’re going to have some sort of green stimulus in Europe. And we have negative real rates everywhere and negative absolute rates a lot of places. So, with that kind of unprecedented monetary stimulus relative to the circumstances, it’s hard to have anything other than a constructive view on the market’s risk and the economy in the intermediate term. So that’s what I have.”
Druckenmiller also noted being bullish on a handful of commodities and commodity currencies, like the Australian, Canadian, and New Zealand dollars. On the bearish side of currencies, he said he was short the Japanese yen.
When asked what commodities he liked, Druckenmiller mentioned copper. “I own copper, believe it or not,” he told Schatzker. “Basically, I think on the margin as I just described with fiscal stimulus and monetary easing at the same time, and the diminution of trade worries, the global economy’s going to be better than the IMF thinks and copper has a little bit of an extra kicker relative to the other ones.”
Regarding the Federal Reserve and interest rates, Druckenmiller saw the Fed Chairman as too afraid to act. “I don’t think Jerome Powell will have the courage to raise rates [in 2020],” Druckenmiller said. “It’s a lot easier to change your mind from a tightening to an easing mode. But I don’t think they’ll be easing.”
Regarding Brexit — which naturally ties back to the British pound, Druckenmiller’s favorite currency — he sounded surprisingly upbeat.
“I think [Brexit] is actually going to be very good for the British economy,” Druckenmiller said. “I separate myself from most on that. I think Boris Johnson is sort of a smarter version of Trump without some of the antics to go along with it, and I would expect investment to fly into that country, and I think they’ll do very well there.”
It’s well known on Wall Street that hedge funds struggled in 2019, particularly the “global macro” type funds that Druckenmiller ran before retiring to manage his own billions. When asked why he thought they were struggling, Druckenmiller cited a changed market environment.
The current market lacks “the opportunities [that existed] in the 80s and 90s,” Druckenmiller said, “because with central banks suppressing interest rates there has not been sort of the one-way high-risk-reward bet.”
It’s true that central banks have been actively suppressing interest rates — and market volatility — for more than a decade, ever since the tail end of the global financial crisis when the S&P bottomed in 2009.
But it’s also true that, at some point, the era of low volatility, low inflation, and low interest rates will come to an end — at which point the pendulum swings hard the other way, in the direction of big “old school” opportunities.
When asked how he was adapting to quant-driven markets, Druckenmiller stressed the increased importance of fundamental conviction. “What I’ve tried to adapt to is having a fundamental belief,” he said, “and if they are creating volatility in the markets, using the volatility rather than getting abused by the volatility.”
Regarding the 2020 election, Druckenmiller suggested a Warren presidency would be great for his old money management shop — thanks to their ability to make money in bear markets.
On the subject of political intervention and regulation, Druckenmiller took a contrarian stance. “I think we need more capitalism, not less,” he said, later adding: “When you have monetary policy around the world with negative rates — I mean you cannot have capitalism if you don’t have a hurdle rate for investment. So, we don’t really have the markets allocating capital the way they would under a capitalist model.”
The last thing to remember about Druckenmiller is that, like his mentor George Soros, he is known for his ability to quickly change his mind.
At one point in the interview, after describing his positions and outlook he added: “That’s for today. Hopefully it’ll last at least a couple of weeks.” One of Druckenmiller’s legendary strengths is the ability to stick with positions as long as they make sense yet cut them loose the moment that they don’t.
TradeSmith Research Team