Billionaire investor Stanley Druckenmiller believes the Federal Reserve’s try and rapidly unwind the excesses it helped construct up for a decade with straightforward financial coverage is not going to finish properly for the U.S. economic system.
“Our central case is a tough touchdown by the tip of ’23,” Druckenmiller mentioned at CNBC’s Delivering Alpha Investor Summit in New York Metropolis Wednesday. “I will probably be shocked if we do not have recession in ’23. I do not know the timing however actually by the tip of ’23. I can’t be shocked if it is not bigger than the so known as common backyard selection.”
And the legendary investor, who has by no means had a down yr within the markets, fears it could possibly be one thing even worse. “I do not rule out one thing actually unhealthy,” he mentioned.
Druckenmiller believes the extraordinary quantitative easing and 0 rates of interest over the previous decade created an asset bubble.
“All these components that trigger a bull market, they are not solely stopping, they’re reversing each considered one of them,” Druckenmiller mentioned. “We’re in serious trouble.”
The Fed is now in the midst of its most aggressive tempo of tightening for the reason that Nineteen Eighties. The central financial institution final week raised charges by three-quarters of a share level for a 3rd straight time and pledged extra hikes to beat inflation, triggering an enormous sell-off in danger property. The S&P 500 has taken out its June low and reached a brand new bear market low Tuesday following a six-day shedding streak.
The investor mentioned the Fed made a coverage error when it got here up with a “ridiculous idea of transitory,” pondering inflation was pushed by provide chain and demand components largely related to the pandemic.
“Once you make a mistake, you bought to confess you are mistaken and transfer on that 9 or 10 months, that they simply sat there and acquired $120 billion in bonds,” Druckenmiller mentioned. “I believe the repercussions of which are going to be with us for a protracted, very long time.”
The buyer value 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 guess towards the British pound in 1992. He later oversaw $12 billion as president of Duquesne Capital Administration earlier than closing his agency in 2010.
“You do not even want to speak about Black Swans to be frightened right here. To me, the danger reward of proudly owning property does not make a number of sense,” Druckenmiller mentioned.