Saxo Bank CIO and chief economist Steen Jakobsen pinged me via email with
some of his thoughts on who to believe and which assets to hold.
Steen says “gold long, weak US growth, FED is lost, and negative interest
rates make no sense”.
I have been doing this job for close to 30 years now. Through that time I
have worked with some of the best talents in trading in the world, I have
also had the pleasure of meeting many great business people, but in my world
there is two or three people who I:
- ALWAYS listen to
- ALWAYS respect
- ALWAYS need to check my world view against
Some of these are private, but the most public one, and the only person I am
a “fan” of is Stanley Druckenmiller.
He is not only is he one of modern history’s best fund managers, but he
analysis is crisp, clear and open minded. He is far more diplomatic than me –
and better – in expressing those views, but tonight’s speech by Druckenmiller
at Sohn Conference confirms to me long held view:
- Gold is the superior asset in present part of cycle
- Fed is lost – totally lost and nothing they say match
their action
- Negative interest is worst policy mistake ever
- Debt is and remains the elephant in the room
Here is quick note from Druckenmiller’s speech:
Stanley Druckenmiller warned on Wednesday that the Federal Reserve’s
low-rate policy is creating vast long-run risks for the US economy.
Mr Druckenmiller, a billionaire former hedge fund manager, said at the
Sohn Conference in New York that Fed policymakers are “raising the odds of
the economic tail risk they are trying to avoid”, such as spurring credit
bubbles, by keeping interest rates near historic lows.
Mr Druckenmiller reckons current economic conditions suggest the Fed’s
benchmark interest rate should be closer to 3 per cent. “This is the least
data-dependent Fed in history,” he said.
Mr Druckenmiller said the “longest period ever of easy monetary policies”
has caused groups to borrow at a quick clip and then use the funds in ways
that are not economically productive. For instance, he noted that “most of
the debt today has been used for financial engineering,” in the form of stock
buybacks and other methods that provide a boon to corporate profits and are
often cheered by investors.
He said that contrasts with other periods, such as the 1990s when debt was
used to craft the building blocks of the Internet.
Stanley Druckenmiller: Corporate America, China And The Fed Are
Stuck – Buy Gold
“I have argued that the myopic policy makers have no endgame,” billionaire
Stanley Druckenmiller said towards the end of a scathing twenty minute romp
through all of the world’s economic problems.
The U.S. debt is out of control, China is even worse and the worst
offender is the Federal Reserve, Druckenmiller said. Corporations in the
United States are stuck in the mud, forelorn of growth, unwilling to invest
and addicted to share buybacks to gin up their stocks. It is a sentiment
Druckenmiller has had for years, but at the Sohn conference the famed hedge
fund manager indicated he means it this time.
Eleven years ago, Druckenmiller warned the Sohn audience of then Federal
Reserve chair Alan Greenspan’s blunders in inflating an epic mortgage bubble
that was sure to crash. On Wednesday, he said the bubble inflated by former
chair Ben Bernanke and current chairwoman Janet Yellen is many magnitudes
worse. The Fed, Druckenmiller said, is using low interest rates to ease
borrowing costs and smooth over problems in the global economy.
This radical Central Bank accommodation is leading to unproductive
investment, and is an issue that is even worse in China, an engine of global
demand. Whether it is S&P 500 Index corporations, U.S. households or the
state-managed economy in China, Druckenmiller believes cheap money is
borrowing from future growth, and will backfire spectacularly.
“While policy makers have no endgame, markets do,” he said. Druckenmiller is
increasingly nervous about risk assets and recommended investors take refuge
in gold.
