Stan Druckenmiller, the Chairman and CEO of Duquesne Family Office, sat down with Bloomberg Television’s Stephanie Ruhle to discuss China’s economy and stock market, Greece possibly exiting the euro and the concern over a contagion in the region.
On an interest rate increase, Druckenmiller said: “My fear is we’re not going to see anything for a year-and-a-half because they set up metrics eight or nine months ago…I have no confidence whatsoever that you’re going to see rate hikes in September or December or whenever because when they lay out metrics and then they change, and then they change again, and then they change again, who knows where — when they’re going to go.”
On Greece leaving the Euro Zone, Druckenmiller said: “Draghi has QE at his disposal. My guess is there won’t be contagion, but even if there is, he can contain it, and soon as market participants see that, you won’t get contagion.”
Druckenmiller would not comment on whether he would back Christie if he decided to run for president. On Hillary Clinton’s announcement he said: “I don’t know. I think old people like Hillary Clinton and I shouldn’t try and be cool with social networks, you know, maybe she should leave that stuff up to Chelsea.”
On why he loves millennials, Druckenmiller said: “They’re smart. They’re entrepreneurial. They have energy. I love being around kids. I couldn’t figure out why all these 70-year-olds wanted to hang out with me when I was 27. Now I understand, and I’m trying to steal their energy from them like they stole from me at the time.”
Stan Druckenmiller: Zero-Interest Rates Unnecessary Now
Stan Druckenmiller: Won’t Be Contagion with ‘Grexit’
Stan Druckenmiller: China Stock Gains Signal Economic Recovery
STEPHANIE RUHLE: Stan, you’re experiencing deja vu. You think it’s just like 2004. Why?
STAN DRUCKENMILLER: Not just like 2004, but it certainly rhymes. Back in late 2003, I remember we had nine percent nominal growth, seven percent real growth. The economy was very, very strong, but we had one percent interest rates, and we also had a tag on them that they were going to remain there for a considerable period, and I just felt at the time that fed policy was unnecessarily easy. They wanted to ensure that the economic recovery got enough momentum. I was more fearful because, historically, I’ve done a lot of work analyzing central banks and subsequent activity, and we’ve had problems in the past when monetary policy was too easy, and I just thought it was unnecessary. I was worried that some trouble might be brewing, but I didn’t — I couldn’t put my finger on what it was. I just knew that we were running an unnecessarily lose monetary policy, and it may have consequences down the road, and that’s kind of how I feel now. I think we’re taking a terrible risk reward in terms of zero rates. Everyone keeps asking me, well, how is this going to manifest itself? I don’t even know whether it is going to manifest itself. I just know that the rates are unnecessary, and, again, it’s sort of the same language, oh, the risk of going to early is greater than going too late. We need to ensure the recovery, and I’m more worried about things down the road than looking in the near term, and I think a lot of the dialog about this is far too myopic, rather than trying to look at things in a longer -term perspective.
RUHLE: So are you saying whether they raise in June or September, isn’t the issue, it’s a fact that rates have been so low for so long, that’s the real problem?
STAN DRUCKENMILLER: I don’t want to describe this as a real problem. What I’d like to describe is a situation where we went through a financial crisis. Immediately, as that financial crisis unfolded, the fed took dramatic and aggressive steps, which were hindsight or about as close to perfection as you could achieve. I say that because we were in the initial stages of a balance sheet recession, and we had one in the 30’s that turned into a depression, so the fed took aggressive measures to rebuild the consumer and, frankly, the whole country’s balance sheet, so the reward was tremendous if you could get asset prices back up and not have the meltdown in economic activity you had in the 30’s, and there was very little risk, so it was sort of a no-brainer. Today, if you look at the situation, stock prices, household net worth per capita, are at record highs. By the way, they went to record highs in 2013, and they’ve been going up for two straight years, so I’m not sure exactly what the fed is trying to achieve in terms of the reward here; particularly, since if you look at what is going on, we’ve had a tremendous amount of debt growth; particularly, in the corporate sector, and, unfortunately, the productivity of that debt, if it was measurable, I would opine to say is at an all-time low. Why did I say that? Because there’s good debt growth, and there’s bad debt growth. Good debt growth is when you borrow money, and it goes into the real economy. You do capital spending. You build businesses. But by most calculations, almost 98 percent of the current debt growth has gone into M &A, cooperate buy-backs, by the way, at record prices, leveraged buy-outs, so where it’s going is into financial engineering, and I can’t prove it, but I would pretty much feel very confident that a trillion dollars in buy-backs, and dividends in the last year and four trillion is the forecast this year for M & A, is a job reducer, an economic reducer, so I don’t exactly what they think they’re getting out of the zero percent rates.
RUHLE: Well, these are CEO’s who are worried, who know that they have to answer to demanding shareholders, possibly activist investors. Larry Fink has come out and said these companies do need to reinvest, need to grow, and it’s not what they’re doing.
STAN DRUCKENMILLER: Yeah. Well, we live in a culture where you go through various periods of something being in fashion and something being out of fashion.
RUHLE: Activism is in fashion?
STAN DRUCKENMILLER: And right now, listening to activists is in fashion, but I would say if you’re the fed, you have to take that into account, and if what you’re getting for zero rates is just a bunch of financial engineering rather than demand — and, by the way, you’re getting a releveraging of our economy that never really deleveraged the last time. You’re setting up the possibility, the possibility, of another asset bubble investment bust. Now, I want to be very clear; I’m not forecasting an asset bubble investment bust two or three down — years down the road. What I’m saying is, if you’re a policy maker, the risk reward is so skewed right