Stanley Druckenmiller was a managing director at George Soros’ Soros Fund Management, where he managed $22 billion for the Quantum Fund. He founded Duquesne Asset Management and ran investments until he closed the firm in 2010. Currently, Druckenmiller manages his family fortune.
At the Ira Sohn conference, he reiterated his disagreement with the U.S. Federal Reserve loose monetary policy and its resulting subsidy of asset prices and risk premiums. However, Druckenmiller does not see an end to QE in the short term; hence asset prices could continue their growth. Prices could experience a correction after QE ends, which darkens Druckenmiller’s long term outlook for financial assets.
Japan’s long term outlook is much more favorable as the country has experienced 15 years of deflation and central bank policy is supporting Japan’s stock market. He sees the Nikkei gaining for 18 months and exports bolstered by a depreciating yen. To play this trend, Druckenmiller favors Japanese domestic companies that benefit from reflation.
Stanley Druckenmiller on China and Commodity slowdown
A slowdown in economic growth in China, according to Druckenmiller, could slow down commodity demand and depreciate commodity-dependent currencies. He believes China misallocated resources and overestimated needs. In turn, commodity producers ramped up production, particularly in Australia Canada, Brazil, etc. Supply outpacing commodity demand will probably continue to drive commodity prices lower. Such depreciation will negatively affect commodity dependent currencies like the Australian and Canadian dollar. Druckenmiller advises to avoid these currencies, and he is also cautious on the Brazilian Real.
He specifically said to short the Australian dollar, which is a position that George Soros is rumored to maintain. The Australian dollar has surged about 45 percent against the US dollar since the end of 2008 and the trend is unsustainable. The Australian economy is struggling with lower manufacturing output and higher unemployment. Yesterday, the Reserve Bank of Australia cut its benchmark cash rate to 2.75 percent. Further rate cuts will likely reduce the value of the Australian dollar. Additionally, he does not favor investing in “commodity-heavy companies.”
Analysts at Deutsche Bank Markets research note in a report released tonight:
Despite generally positive sentiment the AUD has underperformed as the market has come to toy with the prospect of the RBA cutting its policy rate even deeper than had been priced (reports of a major local bank lowering its cash rate forecast to 2% probably assisting). Meanwhile, respected hedge fund manager Stanley Druckenmiller told a New York conference that the recent sell-off in commodity markets was not a correction but rather the end of a decade-long supercycle. He advised participants to short the AUD, which he said could fall hard. Stanley Druckenmiller also pulled no punches in describing the Fed’s monetary policy as the “most inappropriate” in history, whilst praising the BoJ for its latest policy measures to meet an actual deflation.
On another note, Stanley Druckenmiller is bullish on Google Inc (NASDAQ:GOOG); he thinks it’s a better value relative to its peers. The company’s positioning to take advantage of trends such as increased use of smartphones and tablets and cloud computing together with its ability to innovate will provide stock gains to investors.