Druckenmiller Warns Bear Market Has “Ways To Run” Amid 2023 Recession Threats
Duquesne Family Office founder Stanley Druckenmiller was the last speaker at Thursday’s 2022 Sohn Investment Conference. The legendary investors had a conversation with John Collison, the co-found and president of Stripe. Druckenmiller warned of inflation, a continued bear market in stocks, and a recession in 2023.
Collison begins the conversation by saying Druckenmiller predicted in the summer of 2021 that inflation would erupt this year. He asked the famed macro watcher: “What do you predict know?”
Druckenmiller says inflation is much higher than expected and points out that the most shocking part is the Federal Reserve’s slow response to counter rising prices. He said the Fed’s bond-buying through early this year will prove costly as they’re well behind the curve: “Alot of assets were purchased during that period that I think a lot of people moving out the risk curve will lose money on.”
He notes the bubble in the S&P500 has burst, adding valuations are becoming more attractive. Though Druckenmiller said, “It’s highly probable that the bear market has a way to run.”
Collison asks whether the Fed can produce a soft or hard landing. Druckenmiller responds by saying the monetary wonks in Washington will have trouble creating a soft landing. “Betting on a short landing to me is a real long shot,” he said.
Druckenmiller notes that once inflation breaches the 5% mark, it’s never come down without interest rates above CPI and a recession.
He then expands on the idea a recession is coming sometime in 2023 but is not entirely sure if it’s in the first or second half of the year.
Billionaire investor Stanley Druckenmiller predicts a recession could come in 2023 and will be pausing his shorts for now.@LesliePicker gives the highlights from his panel at the Sohn Conference. pic.twitter.com/KpFjt2ykrQ
— CNBC’s Fast Money (@CNBCFastMoney) June 9, 2022
Collison’s next question asked if stock market turmoil signals trouble for the broader economy. Druckenmiller said the stock market is a discounting mechanism of what may happen six to 12 months out, adding homebuilders and the trucking industry face significant headwinds, and retail appears weak. He said the bond market is another signal he uses, though that market is distorted because of central bank manipulation.
He added that if traders are heavily short in bear markets, “you can get your head ripped off” in short squeezes. He anticipates going back to the short equity position.
Druckenmiller said the fixed-income market has become more challenging and doesn’t think he’ll be playing in that market, but has taken an interest in FX and wouldn’t be surprised if he had a short dollar position in six months.
He notes Duquesne Family Office owns energy and other commodities that have been given a boost because of the Ukraine conflict.
On crypto, he finds a strong correlation between Bitcoin and Nasdaq, adding he’s monitoring the space.
Collison asked about the dramatic rise of retail trading on mobile apps. Druckenmiller responded by saying he worries about the many “bull market geniuses” that were surfing with a hurricane, giving them some nice waves, though like anything, nothing last forever.
Druckenmiller said the Fed-induced bubble produced many overvalued stocks that quadrupled when the economy reopened after COVID, calling the period after stocks erupted one of the best-short selling periods he’s ever seen.
Druckenmiller reiterated he has a bias toward growth stocks.
When asked if growth and big tech companies are attractive in valuations, Druckenmiller said he’s still bearish on the world.
The biggest takeaway from Druckenmiller’s conversation at Sohn yesterday is that if history is any guide to the future, the Fed’s aggressive monetary tightening could spark a hand landing, a bear market in stocks isn’t over, and a recession sometime next year.
Fri, 06/10/2022 – 12:11