During the interview, Druckenmiller said, “I think the risk/reward of not acting is all skewed toward acting later.” He emphasized that “acting later “greatly increases the risk of the U.S. economy than acting earlier.” He also noted that his perception is contrary to the opinions of many Fed pundits.
According to Druckenmiller, the U.S. economy can handle an interest rate increase of 25 or 50 basis points, which he considers to be still “extremely accommodative.”
Fed has “golden opportunity” to increase interest rates
“If the Fed was ever going to raise rates and not have it dramatically impact financial conditions, this is a golden opportunity right here, right now,” said Druckenmiller. He believed that significant foreign money will be attracted to U.S. Treasury rates if the Federal Reserve starts moving.
Druckenmiller said corporate debt would continue to rise if the Federal Reserve does not increase the interest rates. He noted that corporate debt rose from $3.5 trillion in 2007 to its current level at $7 trillion, which is described by many as bubbly. He said debt is accelerating because we have zero rates.
“As you know, most of that mix has been in more highly leveraged stuff, Covenant-Lite loans– high yield, that’s where the majority of the rise has been. And if you look at corporations have been using it for, it’s all financial engineering,” said Druckenmiller.
Druckenmiller is not worried about the U.S. economy
Former Federal Reserve Chairman Alan Greenspan and former Treasury Secretary Larry Summers believed that the economy is not great, and comparing it to the Great Depression.
When asked if he is worried about the current U.S. economy based on another disappointing GDP report, Druckenmiller pointed out that he was not concerned about the U.S. economy today. However, he thinks the economy is not great, but he didn’t compare it to the Great Depression.
According to him, he doesn’t see the situation of the U.S. economy today as comparable to the Great Depression. He noted that retail sales and industrial production are at new high level. He added that the employment rate in the country improved substantially from 10% to 5.7%.
Furthermore, Druckenmiller emphasized that the Federal Reserve succeeded in rebuilding the balance sheet with aggressive monetary policy. He said,” Now, is the economy great? No, it’s not great. But with the debt overhang, I think great is probably too large of a target.”
Druckenmiller also discussed his IBM short and noted that he disagrees with Warren Buffett – Buffett’s Berkshire is one of the largest owners of the company.