Billionaire investor Stanley Druckenmiller believes the Federal Reserve’s try to rapidly unwind the excesses it helped construct up for a decade with straightforward financial coverage won’t finish nicely for the U.S. financial system.
“Our central case is a hard landing by the end of ’23,” Druckenmiller stated at CNBC’s Delivering Alpha Investor Summit in New York City Wednesday. “I will be stunned if we don’t have recession in ’23. I don’t know the timing but certainly by the end of ’23. I will not be surprised if it’s not larger than the so called average garden variety.”
And the legendary investor, who has by no means had a down yr in the markets, fears it may very well be one thing even worse. “I don’t rule out something really bad,” he stated.
Druckenmiller believes the extraordinary quantitative easing and nil rates of interest over the previous decade created an asset bubble.
“All those factors that cause a bull market, they’re not only stopping, they’re reversing every one of them,” Druckenmiller stated. “We are in deep trouble.”
The Fed is now in the center of its most aggressive tempo of tightening because the Nineteen Eighties. The central financial institution final week raised charges by three-quarters of a proportion level for a third straight time and pledged extra hikes to beat inflation, triggering a large sell-off in threat property. The S&P 500 has taken out its June low and reached a new bear market low Tuesday following a six-day shedding streak.
The investor stated the Fed made a coverage error when it got here up with a “ridiculous theory of transitory,” considering inflation was pushed by provide chain and demand elements largely related with the pandemic.
“When you make a mistake, you got to admit you’re wrong and move on that nine or 10 months, that they just sat there and bought $120 billion in bonds,” Druckenmiller stated. “I think the repercussions of that are going to be with us for a long, long time.”
The client worth index elevated 8.3% in August yr over yr, close to a 40-year excessive and coming in above consensus expectation.
Druckenmiller as soon as managed George Soros’ Quantum Fund and shot to fame after serving to make a $10 billion wager in opposition to the British pound in 1992. He later oversaw $12 billion as president of Duquesne Capital Management earlier than closing his agency in 2010.
“You don’t even need to talk about Black Swans to be worried here. To me, the risk reward of owning assets doesn’t make a lot of sense,” Druckenmiller stated.