3 Minute Gold News – Stan Druckenmiller

3 Minute Gold News

A Quick Read for Busy People

An interview synopsis of money manager titan Stan Druckenmiller with Kiril Sokoloff chairman & founder of 13D Global Strategy & Research, from Real Vision.

Stan was the Founder, CEO, President and Chairman of Duquesne Capital Management until 2010. He was a Managing Director at Soros Fund Management from 1988 to 2000. Stan was employed at The Dreyfus Corporation, where he developed and ran the best performing mutual fund in the industry from its date of inception to his departure.

His unrivaled track record spans many decades, making Stan one of the world’s most successful money managers.

by: Elaine Diane Taylor

 

Topics:

Algorithm Trading
Interest Rates
Emerging Markets
Today
Japan
Trigger for Reckoning
Populism
Coming Up

 

Screen Shot 2018-11-16 at 1.23.39 PM.png
Interview Link

Stan viewed the economic world as a challenging puzzle at the beginning of 2018.

Interest rates were too low worldwide. There were negative real rates, yet central banks were expanding their balance sheets by $1 trillion per year.

The US is now letting $50 billion per month run off from their balance sheet.

Europe has been doing QE of $30 billion euros per month and Stan believes that will go to zero by the end of 2018.

If you go from a trillion in central bank buying a year down to zero does it matter if global interest rates are too low?

ALGORITHM TRADING

All of the rhythm has come out of the market and price signals have become confusing.

In Feb. 2018 we saw some concentrated selling by the algos, and also in China in 2015. That was scary. The machines are programmed to sell if the market is down 2%. This suppresses a trend just as it’s taking off.

It’s all messed up.

The machines are running and they can’t be stopped. A huge amount of money is being managed by computers.

INTEREST RATES

If you don’t raise rates then asset prices continue to build, and deflating an asset bubble will cause a deflation.

Raising interest rates back to normal is more challenging now than it was five years ago. But it’s the chicken and the egg. When you can borrow money at 0% interest of course debt is going to explode.

If we normalize, we’re going to have a problem because of the huge debt.

If we don’t normalize then it’s going to accelerate and cause a bigger problem down the road,

Stan would raise rates every Fed meeting, as long as he could. Then the minute there was a financial disruption he would back off.

The sad thing is that since he first made that statement five years ago we’ve had rip roaring markets. Now he’d say to just sneak one in every time you can. The Fed has passed up on so many golden opportunities.

The problem now is that the debt is so much higher, particularly in emerging markets.

You’re not going to be able to raise much more, and we’re already starting to see the consequences.

The more egregious QE is in the ECB and one can only imagine the rot that must be in those banks from malinvestment.

EMERGING MARKETS

Money is flowing into the US from emerging markets.

If the tightening continues then the bombs will keep going off in the emerging markets.

They were the biggest recipients of free money because: A) All the money managers poured money in and B) There are no market constraints on the political actors.

Things like Argentina issuing 100-year debt at 7%. Stan’s never seen a government last 5 – 10 years, never mind one hundred.

Focus on capital preservation. and carry a big bat for a big bet. If you’re going to make a  bet like that it has to be in a very liquid market.

Stan makes more of those bets in the bond and currency markets because they are liquid and he can change his mind.

If you’re betting a large amount on an equity you just have to be right because at that size it’s not liquid.

Between 1998 – 2008 Warren Buffett’s company was down 40%. A hedge fund couldn’t lose money like that for more than 3 or 4 years or they’d be out of business.

He likes to get in early and not pile on after a very early stage.

When he’s down then he takes a lot of little bets until he breaks even.

He says that at the end of the year you take a percentage of whatever profit you made for the year. Then psychologically and financially you reset to zero.

Last year’s profits are yesterday’s news.

Life goes in streaks. Like in baseball, sometimes you’re seeing the ball and sometimes you’re not. When you’re managing money you must know if you’re cold or hot.

When you’re cold you should be trying for bunts and not swinging for the fences until you get back in a rhythm.

He believed that if he was down then he hadn’t earned the right to play big. The little bets were on to simply tell him if he was starting to make hits again.

This view dominates his thinking, but if a once-in-a-lifetime comes along you can’t sit there and think you need to earn the right to make a big bet.

His biggest win was after he took a four month sabbatical and could see the overview picture. He was seeing things fresh and wasn’t hitting badly yet.

It’s a huge function of success or failure.

Know when you’re hot or cold.

TODAY

US equities have gone up for almost ten straight years.

Everything for Stan has been about liquidity and not earnings or politics. One of these Fed hikes, he doesn’t know which one, but one of these hikes is going to trigger this thing.

He’s on triple red alert. We’re not only in the timeframe of a decline, we’re also in the part of the curve when it starts.

Maybe markets don’t anticipate the way they used to.

There’s no more ECB money spilling over into the US equity market at the end of the year.

If we get a blow-off in the fourth quarter, which happens seasonally in NASDAQ top markets, particularly if the financial bombs keep going off in emerging markets, then he’ll probably be ready to go short the market.

JAPAN

The JGB (Japanese Government Bonds) used to be looked at as the outlier but really it was the leader. Japan is part of the puzzle of world economics.

Japan looks to be ending QE by the end of the year, at the same time as it looks like the ECB will stop buying bonds. And at the same time it looks like the US will be shrinking their balance sheet $50 billion per month.

All these pieces fit together for a reckoning.

Japan finally understands that it’s killing their banks, which is the blood and the oxygen you need to run the economic body. That’s causing a political problem.

They are finally starting to normalize and it’s important, but only as a piece in an overall puzzle.

TRIGGER FOR RECKONING

It’s going to be the shrinkage in liquidity that triggers this thing.

It’s already triggered in emerging markets. That’s kind of where it always starts.

Where Stan hasn’t seen it yet, and he believes we’ll see it before we see the equities go down, is the credit market.

Probably since the 1890s this is the most disruptive economic period in history.

There’s hardly any bankruptcies. There’s probably so many zombie companies swimming naked with the tide.

There’s going to be some level of liquidity that triggers it. It’s nuts.

Corporations are buying back their stock and there was trillions spent without a cash return, running down their balance sheets.

What happens when interest rates start to reflect credit risk?

FINANCIAL CRISIS

You can make a case that we’re going to have a financial crisis bigger than the last one because all they did is triple down on what caused it.

And they’ve tripled down on it globally.

They’ve tried to solve the problem of debt with more debt. That was tried in the 1920s and that didn’t work out.

There are zombie companies out there. Will they infect the banking system again next time?

ENTITLEMENTS

There $100 trillion in unfunded US liabilities – Medicare, Medicaid, and Social Security – it’s 5 times GDP.

It’s just as bad in the rest of the world.

There’s going to be some tough times.

POPULISM

Envy is one of the strongest human emotions.

Populism comes when there’s a great divide in income disparity.

The previous populist periods were set off by worse economic stats than we have now.

The wealth disparity today was accelerated by QE and the internet has broadcast it across the globe. Stan believes Amazon’s Jeff Bezos has earned everything he has, but how can a normal citizen contemplate Bezo’s estimated wealth of over $150 billion?

That’s the seed of the populism we’re seeing around the world.

This is going to get worse. It can’t stop. It’s built into the system.

You end up with some major dislocations economically and politically because of it.

It’s not about Trump. It’s global and it’s happening everywhere.

Macron won in France probably as a short term response to Trump as a populist, but apart from that there’s just been surprise after surprise to the elites on these elections.

COMING UP

There could be a financial crisis bigger than the last one because they tripled down on the thing that caused it – debt. Too much bad investment.

Stan doesn’t know who the boogie man will be this time but he knows there’s zombies out there.

There’s a populist sentiment in the debtor versus creditor world of vast economic disparity, and it’s being shown every day across the internet.

When there’s no more liquidity will the zombies, the companies that need bailouts in order to survive, infest the banking system like they did last time?

It’s going to be the shrinkage in liquidity, one of these Fed hikes, that triggers this thing.

Stan is on triple red alert.

……………………………………….

Nothing on this site is intended as individual investment advice. We’re all watching which way the wind is blowing.

……………………………………….

 

My thoughts…

It’s a good idea to learn from people who know finance but are not specifically into gold. Even though Stan isn’t talking about precious metals he’s talking about upcoming events in the same way as others we’ve covered here.  I think Stan’s term “reckoning” is important. Populism is what I’m talking about here:

 

Coins and Crowns

words and music Elaine Diane Taylor
SOCAN/ASCAP
from the album Coins and Crowns available on iTunes

 

Single featured in Episode 1 of Mike Maloney’s documentary series Hidden Secrets of Money.

……………………………………….

A big thank you to Jim Rickards for including me in his New York Times bestselling book The New Case for Gold.

Screen Shot 2016-03-11 at 9.49.31 AM

……………………………………….

From David Crosby’s Twitter message: “Well Miss Taylor…lyrics are the hardest part and yours are excellent…music’s good too.”

A Terrible Breeze    (North Korea and Nuclear War)

The news comes down
A little bluebird sings
Words of war
Fire and furious things
Of testing might
‘Til no patience knows
If keeping still
Still keeps you safe at home

It’s a terrible breeze
They speak of today
Of threats that used to live a world away
We all know wind
Can blow both ways
And a terrible breeze can blow it all away

A worldwide net
Sees our village grow
Until we all forget
What each one used to know
How a blind bird’s wings
Can reach the shore
And turn the wheel of peace and war

Village fools sinking down, down, down
Debt and gold wound in numbered shrouds
Deal of a life it’s bread and clowns
Can we afford another go around?
The news comes down.

It’s a terrible breeze. The news comes down.

words and music Elaine Diane Taylor
©2017 Elaine Art & Media SOCAN/ASCAP

 

Single available on iTunes

I am thrilled about the peace summit and new ways of thinking about the future.

So amazing.

No one wants to turn that wheel of peace and war.

……………………………………….

Not Much of a Holiday (Greek Debt and Media Persuasion)

words and music Elaine Diane Taylor

© 2015 Intelligentsia Media, Inc. All rights reserved.

SOCAN/ASCAP

Single available on iTunes

The Greek bank holiday and long lines to get a few euros for the day. Debt deals behind closed doors. The media telling us what opinions to have. China building islands in the South China Sea and claiming all the international waves. More dealing to come. More standing in line for those who owe. Who owes? There’s a long line of nations in debt and this is far from done.

……………………………………….

Screen Shot 2016-03-11 at 9.49.31 AM

……………………………………….

AlbumCover.PreparingfortheFall

Preparing for the Fall live boutique album available on iTunes — featuring Wag the Dog, Black Swan Dive,  American Pie and Gods of the Copybook Headings.

……………………………………….

 

The Gods of the Copybook Headings

words by Rudyard Kipling and music by Elaine Diane Taylor

©2014 Intelligentsia Media Inc.

SOCAN/ASCAP

from the album Preparing for the Fall available on iTunes

 

The copybooks of the early 1900s gave us all the wisdom we need. The sayings that were copied are the truths, the gods, of our world. All the empires who followed the gods of the marketplace instead have fallen, and there’s terror and slaughter when the gods of the copybook headings return. The lyrics are by Rudyard Kipling. One of my gurus.

Another Week on Wall Street

words and music Elaine Diane Taylor

© 2013 Intelligentsia Media Inc. All rights reserved.

SOCAN/ASCAP

from the album Coins and Crowns available on iTunes

See the bankers wave their Wall Street wands and conjure piles of paper green. Naked short selling is like betting that your neighbour’s house will burn down. But in this scenario it happens to burn down. If the bankers win then we lose the whole world as we know it. I wrote this in 2009, with a lyric “A little grease (Greece) is floating out to sea, and little pigs (Portugal, Italy, Greece and Spain) are bobbing up and down, they’ll send a storm and we’ll see, when the tide goes out who’s naked on the beach“, and it’s coming on now. The world is changing as we know it.

……………………………………….

Nothing on this site is intended as individual investment advice. We’re all watching which way the wind is blowing.

Please feel free to leave a comment. Email addresses are not publicly shown.

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s