Druckenmiller Talks Fed Policy And Trade War

Billionaire investor Stanley Druckenmiller discusses the outlook for the U.S. economy. He talks with Bloomberg’s Erik Schatzker. (Source: Bloomberg)

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Transcript

If you look at the coincident economic indicators which I wish the Fed did they actually look at lagging indicators. But if you look at the coincident ones they all look quite good. GDP has a 3 handle so forth and so on. If you look at the indicators I have historically used in my business they're not quite ready yet but they are definite I'm sorry continue. They're not ready yet. But what what they are definitely ember and they are setting off warning signs. What do you see. OK. So the best economist I know is the inside of the stock market and I'm sure you've heard Harrich to joke I heard it Bowden in my economic one class the stock market predicted nine out of the last five recessions. I will say with all humility that's better than the Fed. They've gone 0 for 9 so nine out of five. It's not. It's not that terrible but the best economists I know out there is the inside of the stock market. So the Fed when they look at the stock market and they look at financial indicators probably is just looking at the S&P but the decline in the S&P which is funny when I was preparing for this interview it was 10 It's now 13 is a bit of a mirage. If you look inside the stock market these. Elements of the economy particularly the front end cycles have show a completely different picture that the defensive parts of the stock. That's more sensitive to the economy economy. So auto stocks are down. 30 percent.

They're not down 10 or 11 they're down 30 building stocks are down 35 banks. Which you would think might be a symbol of credit or something else. Twenty five percent. The Russell 2000 is down over a percent. Retail equities are down over 20 percent. So how in the world could the S&P only be down 10 or 11 when I was looking at these numbers. It's because you've built these staples and pharmaceuticals which are economically defensive are actually up in this same situation. I used cycle after cycle so it's one of the thing the inside of the stock market which is the best economist I know and which I've used every cycle when I've invested is saying there's something not right. Here and this is the same set of indicators that you've used. To predict the past four recessions the very same. Yes you might say it's because I have a. Not so pleasant personality but. At Duquesne we always made. We did predict the last four recessions and our returns going in. Them and as they started were always well above our. Returns over time. So inside the snark. Is one indicator. The second would be the yield curve. And Amber not red but we've inverted as you know. Fives and twos just slightly. Two years of 269 five years or two. Sixty eight to 10 years to 85. So there's not only a. Big flattening going on. It's a very confusing bull. Flattening because it's not like we're looking at high rates start with him. And the Fed is you know told us that there's going to be. Four hikes next year after this hike.

And the market is just. Saying No No No. Then the other thing we've looked at a store. Whose credit tends to lead the economy. There seemed. To be a confidence that the coal we don't have the danger we had in the last cycle. Because the bad stuff allowed House.




About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver