A recent (June 2022) , long-format discussion with Stan Druckenmiller.
Some key takeaways: (paraphrasing)
-Historically, he (Stan) made more money in bear markets, not bull markets -- because he could load up on 'safe' bonds and let the Central bank lower rates.
-Historically when interest rates, oil, and the DXY (USD) are all up, company earnings -- and stock prices head down. Stan asks: Does this sound like today?
-He has less high conviction bets than he normally does. His current bets elicit humility on his part.
-If a strong equity rally (15% or so) were to follow, he would be inclined to short it at that point.
-Still likes energy fundamentals (supply/demand). But concerned the trade is crowded
-No historic analog for our current (macro-) circumstances (esp. as regards Central banks) but, the possibility of the 1930's comes close).
Comments
Not to monopolize here, but I do suspect the “free-fall” in many commodities today has gotten the Fed’s attention.
Every time I hear Druck speak, I am impressed with the wealth of experience the man has and is willing to share...
I don't mean just share his opinions -- every shoeshine boy (or seekingalpha contributor) has an opinion on the market -- but his insights on why its his opinion, the insights gleaned from that lifetime of experience.
I admire his candidness -- he is too old to worry about being politically correct.
He is invariably self-deprecating -- his anecdotes as often as not speaks to when he made mistakes, as he does his successes -- which makes sense, since our mistakes are how the human animal often learns.
I feel the same way about Dalio's interviews, though Dalio's verbal style sometimes leaves me scratching my head ... like he is drawing a persuasive, macro circle -- but cannot quite connect his start and end points. -- And Dalio always seems to close the interview with the same recommendation: "Broadly diversify". -- Which is what someone might recommend if they had no opinion on anything..
Some poster on YT did a more detailed summary than did I:
2:11 In my career I've said many things that didn't turn out
4:00 The last 10 or 11 years we've had $30 trillion in QE
4:35 This business is about guessing
5:11 We've only pulled off 2 or 3 soft landings in history. The one I remember was 1994/1995
5:20 We've never had a soft landing after inflation has gotten above 4.5%
5:56 Anything is possible. I've been wrong plenty of times in my career
6:25 Once inflation has gotten above 5%, it's never come down unless Fed Funds has gone above CPI
(but this time that will probably be broken, because Fed Funds would have to go above 8% this time)
7:24 Once inflation has gotten above 5%, it's never been tamed without a recession
8:23 We have $1 trillion to $1.5 trillion in excess savings (who? households or the Government?)
9:53 I was a dropout of a Ph.D program at the University of Michigan
9:57 I don't use what traditional economists use to predict the economy -- things like employment
10:17 The inside of the stock market has a prescient message regarding future economic activity
10:27 Stocks lead fundamentals by 6 to 12 months
11:00 We listen to companies and do a bottom-up analysis
11:14 If leading industries are turning up or down, that's a signal
11:27 The bond market used to be a prescient signaler,
but the last 10 or 11 years it hasn't signaled because the Central Banks have manipulated bond prices
12:04 Last summer when the 10-year yield dropped from 1.70 to 1.15, I didn't anticipate that
12:15 Central banks were buying trillions of dollars and manipulating price of bonds
13:15 Home builders with good fundamentals have declined 50% from their highs (might actually be around 36% drop)
13:28 Trucking is down 40% from their highs (might actually be around 30%)
13:49 Retail numbers are tainted. Can't just accept them blindly
14:48 A lot of these signals have long lead times, 6 months to a year (meaning, recession might not happen until 6 months to a year)
16:10 When I first got into the business,
if a company reported bad earnings but still closed the day positive, that stock was going to be up 6 months from then (and vice versa)
16:28 If the economy looked great and bonds were rallying, that meant the economy was not going to be great
16:55 Price versus news is weakened these days compared to 20 years ago
17:21 I started in this business in the mid 1970s
17:27 Traditionally, I learned that during bear markets I had to morph into bonds, commodities, foreign currencies
17:45 Maybe this says something about my dysfunctional personality but I've always made more money during bear markets
17:55 the way I did it was by ignoring equities and taking them off the table, and buying bonds
18:00 But I've never seen a situation like this where inflation is over 8% and yields 3%
18:21 Referring to golf, I feel like I'm about to play without a driver or wedge, because bonds which have been my go-to may not work this time
18:50 Investing is an art form and you have to innovate from cycle to cycle
20:29 I've lived through enough bear markets to know that if you get aggressive shorting, you can get your head ripped off with rallies
21:03 Side-stepping a decline is not the worst thing in the world (that is, getting out rather than risking losing or gaining)
21:31 I'll be surprised if sometime in the next 6 months the dollar DOESN'T weaken
23:09 There's a strong correlation between crypto and NASDAQ
24:00 My 69th birthday is in a few weeks
24:32 I feel like my predictive power is better but I'm not making as much money because I'm not as aggressive (with investing)
26:34 If we're gonna have a bull market, I want Bitcoin. If we're gonna have a bear market, Gold
27:35 You gotta know your own biases
28:10 I was lazy in college, but I'm passionate about investing.
I'm intellectually stimulated imagining the world and prices 12 to 18 months from now
31:15 Business school says that if you're highly diversified, you have less risk. I don't believe that at all
31:26 People get in the most trouble when they have stale longs or shorts
31:42 You have to have ruthless discipline and be paranoid
32:09 What I learned from George Soros is that it's not about whether you're right or wrong,
it's about how much you make when you're right and how much you lose when you're wrong
32:25 I believe in streaks. One of my number 1 jobs is to know when I'm hot or cold
35:41 When you hear a good idea, within 2 or 3 weeks it may be too late
Yep - Sorry. Always fighting with the spell-checker.
BTW - Stan Druckenmiller was a frequent guest on the old PBS “Nightly Business Report”