Soros's "close comrade-in-arms" rarely speaks: I can't understand Bitcoin, but I still bought it
Original Source: Wall Street Insights
Author: Ye Zhen
Original title: " Soros's "close comrade-in-arms" rarely speaks: This is the wildest market in forty years! "
Summary: After hastily ending his 30-year military career in the financial battlefield, Stanley Druckenmiller rarely appeared in public, and rarely expressed his investment views publicly. In this rare conversation with Goldman Sachs, he shared his latest views on macro investment, large asset classes, and Bitcoin.
"This is the wildest market I've ever seen!"
For decades, Druckenmiller was considered one of the most successful macro hedge fund managers in the world. In the past 30 years, he has created a performance with an average annual compound growth rate of 30%, and has maintained a record of no negative return years in his investment career.
Druckenmiller was once a "close comrade" of Soros. At the invitation of Soros in 1988, Druckenmiller officially joined Quantum Fund. In 1992, Druckenmiller correctly predicted that the pound would fall against the Deutsche mark. At that time, he helped Soros "snipe the pound" and won a big victory in the contest with the Bank of England.
In 2010, Druckenmiller suddenly announced his retirement, ending his 30-year "military career" in the financial battlefield.
In this rare dialogue with Goldman Sachs, he shared his latest views on macro investment, large asset classes, and Bitcoin. Wall Street Insights has excerpted some key points from the interview:
"Strange environment"
Druckenmiller first introduced the current investment environment and used an adjective—— "Strange": The recession we've had is 5 times the average since World War II, but it happens 25% of the time. What's even stranger is that 11 million people lost their jobs in the year, yet thanks to massive policy support, we had the biggest increase in personal income in 20 years.
The CARES Act added trillions of dollars in fiscal stimulus. how big is this In three months of 2020, we added more deficits than the past 5 recessions combined (1973, 1975, 1982, early 90s, dot-com bust, and global financial crisis). The Fed bought more Treasuries in 6 weeks than the Bernanke/Yellen administration did in 10 years.
Before the crisis, corporate borrowing had increased from $6 trillion to $10 trillion due to the Federal Reserve's monetary policy, and during the recession, corporate borrowing Borrowing almost always falls, but business borrowing has risen by $400 billion this year. For comparison, business borrowing fell by $500 billion during the global financial crisis.
Placing U.S. policies in a global context is even more surprising, as Druckenmiller points out: Since 2018, U.S. M2 has grown by 25% over nominal GDP, That is a 25% increase in liquidity. In China, the ratio of M2 to nominal GDP is unchanged from 3 years ago. So China isn't overdrafting anything from their future, we have a lot of liquidity invested and frankly very little investment, mostly transfer payments and Fed stimulus. We handled the virus horribly, and China and all of Asia basically beat the virus.
Short U.S. bonds and the US dollar, long commodities
In the interview, Pasquariello asked , if only one asset could be chosen that offered the best opportunity next year, what would Druckenmiller choose?
Druckenmiller said that's not how he plays the game. In his view, the overriding investment theme right now is inflation relative to what policymakers think. But since policymakers' responses may vary depending on how effective the vaccine is, it's best to have an investment matrix.
Druckenmiller revealed some of his positions: Shorting long-term U.S. Treasuries in response to reflation.
Have a large position in commodities. Because the longer the Fed tries to keep rates down, the more odds it has in commodities.
Short the dollar. "Very, very" bearish on the dollar due to the contrast between US policy and Asian policy.
Growth stocks face challenges, big tech stocks can go up again
Pasquariello asks about Druckenmiller Views on stocks, especially technology stocks, including large technology stocks, cloud computing companies and some small growth stocks.
For growth stocks, Druckenmiller is more cautious. He believes that, from the perspective of valuation and bond market conditions, growth stocks will be in a In a very, very challenging environment: If the U.S. has 4-5% inflation in a few years, bond yields rise sharply, growth stocks have historically been very negative relative to other stocks.
On the other hand, comparisons to 2000 are ridiculous. Ridiculous reason, we had a double whammy at the time, not only in the midst of a high valuation mania, but the earnings were also coming to an end, because those companies were growing fast at the time because they were building the Internet itself, and when the Internet was completed, it couldn't continue generate income.
Druckenmiller remains bullish on big tech stocks that have matured: Amazon and Microsoft have been underperformers in tech over the past 2-3 months . But they're not overvalued, and if the Fed continues to push the envelope on friendliness, I'm not worried about these stocks, and in fact, they may continue to rise.
Asia has come out of the epidemic and become a big winner
Druckenmiller is very optimistic about the investment prospects in Asia, and at the same time Holds Chinese, Japanese and Korean assets.
These regions are off to a good start this year, and Druckenmiller points out that while the U.S. is desperately overdrawing its future, Asia has come out of the pandemic as big winners: In technology, as Intel disarmed and surrendered, Asia has foundry and memory, and it is also leading in robots. I think Asia looks a lot better than the US for the next 5 years, because at some point the US has to pay for productivity, higher wages, and a more depreciated dollar.
In the long run, Asia will outperform the US, especially in the foreign exchange market. China's net investment just surpassed that of the US this year, and this is just the beginning of a trend, not the end.
Can’t understand Bitcoin, but still bought it
For the comeback of Bitcoin, Pasquariello naturally couldn't miss Druckenmiller's take on it.
When asked whether Bitcoin was the mother of all asset bubbles or something more real and long-lasting, Druckenmiller replied that it was probably both. .
Druckenmiller expressed his confusion about Bitcoin: Bitcoin has been around for 13 years, especially the young millennials, who see it as I see it way of gold. But I doubt that Bitcoin will be a store of value because if it is a currency, it has all kinds of problems, such as consuming a lot of energy, high volatility, etc.
Druckenmiller admitted frankly that he didn’t understand Bitcoin, and he didn’t really believe in Bitcoin, but he did buy some, and after buying it, the price went up a lot of.
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