Billionaire hedge fund manager Stanley Druckenmiller’s full CNBC appearance
Transcript
Joe: Let’s get right to our special guest, and that is Stanley Druckenmiller — Duquesne Family Office CEO, founder of Duquesne Capital. And you manage that as well as a lot of Soros money. I don’t know how you did so much at the same time. If you don’t know this man’s record — and I’m not even talking about being the biggest philanthropist in the world — I think it was 2009, Stan, at $800 million? But I can’t remember. Anyway, thirty years without a down market —
Druckenmiller: Thirty-nine.
Joe: Thirty-nine. But an average — thirty years competing — we don’t really talk afterward. It’s thirty. And I think after 30 years of not having a down year, or getting 30% a year — I don’t see how you could do it. You get up every morning worrying, I think. Wouldn’t you?
Druckenmiller: That’s too much for anyone. I tried. It was a lot of luck in there — I had a lot of big drawdowns in a year. It’s just the way the calendar came out. So there was a lot of luck involved with that.
Joe: I’ve talked to you in recent days, and you had an interview that got a lot of play at the Economics Club. So we’ll start by saying — a thousand points… sorry, 100 points a day would bring us up almost a thousand for the week — we’ve had a snapback. And I asked you about it. They said you’ve sold everything and gone into Treasuries. Was that — that’s not exactly what you did, is it?
Druckenmiller: No, but I did do a lot. So I was over 90% invested — fat and happy, the Fed looked like they were going in the right direction — and the Sunday of the Trump tweet came in. Monday the market was only down a half or one percent, and I decided to go to net flat. That was the first chunk. That was the China — not the Mexico — tweet. I just kind of wanted to take a deep breath and process it. “Net flat” doesn’t mean I sold everything — I kept all my long investments and used other vehicles. The other thing I did was I bought a bunch of Treasuries, just because I wanted to. By the way, it took me three days — I wish I had done it all the first day but didn’t have the courage or the gumption. And yeah, that’s what I did, and pretty much stayed there until the Fed re-pivot — acceleration, whatever you want to call it — Tuesday morning. I’m nowhere near back to where I was, but I’ve gotten a little more exposed during the week.
Joe: But you also point out that a lot of it is luck. So it looked like you said, “I’m gonna play Treasuries as they go up and the yields fall.” But that wasn’t really the reason — you needed to go somewhere and you bought Treasuries, and then all of a sudden that was serendipity and the Treasury market just took off. So it looks like another Soros-esque one-way bet. What’s a one-way bet?
Druckenmiller: That’s when you have a lot of conviction that something might not move much, but if it moves, it’ll only move in one direction. So I bought the two-year Treasury — I think it was like 2.30% or something. If I’m wrong, it goes to 2.40%, and you can envision a scenario where you could make 150 or 200 basis points. So I didn’t necessarily think I was going to make money, but it was a great risk-reward. And now that it’s down to 1.85% or wherever it is this morning, it’s no longer a one-way bet. You could lose 60-70 basis points, but could still probably make 150. So it’s not like it’s a bad bet — it’s just nowhere near what it was on that particular day.
Joe: So you definitely sat up and took notice of what these tariffs might do to what you were pretty happy about — the regulation, tax reform, animal spirits for the markets. You think this is enough of a headwind to really reverse all those positive things? Could we go into a recession? Could the market have a much bigger pullback than we’ve seen so far? Is all that on the horizon?
Druckenmiller: You still don’t know, Joe. The answer is: I don’t know. But I’m managing my own money and I don’t need to play every day — I’m not competing. You said it perfectly. I think I called in right after my knee replacement, the day after the election, and you guys were great — we had a discussion about how none of us understood why the market would go down because Trump had been elected, with cutting taxes and deregulation. And I think we talked about animal spirits in that interview at the time, and maybe the economy could grow at 3% under this guy. I wish I had followed my own advice more in action — but that’s kind of what happened. Animal spirits is something you can’t measure, but confidence matters. And you do wonder — the Journal had a great piece on this, I think Tuesday morning — you do wonder whether this is enough to kill animal spirits. For example, if you’re a company and you’re thinking about building a plant or doing capital spending — aren’t you going to wait now to see how this is resolved? But if you just calculate the tariffs in and of themselves, it doesn’t look that damaging. At the same time, Ben Bernanke — who’s a great mind, got a lot more IQ points on me — he thought subprime was contained, because if you just do the math, it looks okay. Same thing here. But if you take all the other effects and the confidence impact… We had Huawei, and 5G was going to be one of the great engines of not only U.S. but global growth — that’s challenged now. We’ve interrupted supply chains all over the world. Then we got Mexico — that one came out of nowhere. So there’s a lot of uncertainty, and I’d love to sit here and tell you I have a crystal ball, but I just don’t know.
Joe: You and Kevin Walsh have been watching the Fed and commenting on it for a long time. Is there a law of diminishing returns for what the Fed is able to do? Have we hit that yet?
Druckenmiller: It doesn’t look like we have, because we got a pause which bounced us in December, and then we got something more recently where there might be a cut, and it worked again. Is it always going to work just because it makes stocks more valuable? No — one day it won’t work. We proved that in 2008. At some point you start pushing on a string. I’ll say this: I don’t understand the Fed’s monetary framework at all. I grew up in an era with Volcker and Greenspan, where monetary policy was primarily used counter-cyclically — when the economy started running too hot, they would lean against it, and when it looked like things were softening, they would lean against that. Now we have decimal-point inflation targets — like it’s Armageddon if it’s 1.432 instead of 1.65. We’re worried about inflation expectations five or ten years down the road. We have a 2.0% inflation target, and if we don’t meet it, it’s Armageddon. I have trouble with the preciseness and the attention to it. As you know, Joe — you may not agree with me — but I think we’re in one of the biggest productivity inflection booms since the late 1800s. I’m very confident that it’s not being measured in real GDP. I’m also very confident I couldn’t measure it — so don’t think I’m arrogant. But I know that we have all these free products that don’t show up in GDP. Someone at MIT did a study and said the average American would pay $18,000 a year to use the Google search engine — I’d pay more, by the way. And here’s one little anecdote: in 2010, Americans took about 300 billion pictures globally. This year we took 2.5 trillion pictures. And the pictures on the phone in your pocket are better than the pictures you were taking with a Kodak camera eight years ago. If you look at GDP accounting, there is no accounting for the value of those pictures. In fact, you could argue that since we used to pay 50 cents per picture to have them developed — that added to GDP — and that’s no longer there. So it now literally subtracts from GDP. And I could give you a million other examples.
Joe: I agree 100%. So I’m putting all my clients in Fotomat shares.
Mike: If real growth is higher, and you have these powerful long-term trends working in favor of that — how is the Fed, at two-and-a-quarter to two-and-a-half percent short-term interest rates, restraining that? In other words, you mentioned the Fed has sort of re-pivoted because it seems to want to move toward where the market is at this point. What’s the difference if the Fed were at 2%, or 1.5%, versus the 2.25 to 2.5% it is right now?
Druckenmiller: Well, because the gig economy is important, but it’s not the only economy. The economy works on the margin and on confidence, and there are a lot of other areas — autos, old-line retail, global trade — that are deteriorating. I actually think the Fed is right to be worried. I think we could be at an inflection point, and I think they’d be crazy not to think so. I have no problem with what Chairman Powell has done — I think he inherited a very tough job. My biggest problem is with what Yellen did. We had a booming economy, fairly early cycle. I know I talk too much about the Fed, but at the time I said they should sneak one in every time they can, until they get to some normal rate. I deeply, deeply believe that in a capitalist system you need a hurdle rate for investment, and if that rate is not up there somewhere around 3% or 4%, people are going to get crazy, investors are going to get crazy, corporations are going to get crazy, zombies are going to stay in business. And we had the opportunity to get there.
Mike: But they didn’t sneak one in. In December 2015, the markets kind of continued falling apart, and then they were on hold for a year.
Druckenmiller: Yeah, but we had that whole period in 2016 where, in my opinion, they could have gotten to 3.5% or 4%. We’ll never know, but they could have at least tried. But once confidence turns down, you’ve got to deal with the hand you’re dealt. And Chairman Powell has now got a tough situation on his hands.
Mike: You’ve evolved — you’d say we should really be cutting, and it would be great, but we’re not at that point. What does that mean? Do you think there are bubbles that have built up in the equity markets and other markets? Are there still zombie companies out there? Have we not shaken things out because we haven’t been at 3% or 4%?
Druckenmiller: Yeah. We have $10 trillion in corporate debt — we had $6 trillion. I think you and I did an interview for Delivering Alpha and it was like $7.5 trillion at the time. So ironically, by trying to achieve escape velocity, we are in worse shape for a recession now than if things had slowed down during the period you’re talking about — because there’s been a lot of nonsense going on since then, and now we have the global trade situation on top of it. So you just don’t know.
Joe: From what I’m hearing, your views have evolved on the Fed at this point. And I like what you’re saying because it puts us in a much more positive place — if it’s productivity, innovation, and technology that has us stuck in this low interest rate environment. Do you know what I pay for Google Maps? What would I pay for Google Maps? It has changed my life. I know when I have to leave because it says, “Oh, there’s traffic on that route.” If I had that when I lived in LA, I would have gotten off the freeways instead of wasting seven years of my life sitting in traffic.
Druckenmiller: It’s the way this affects inflation too — quality adjustment. That’s why interest rates are so low. If this were measured properly, we’re probably already in deflation. By the way, that’s a good thing — we have good deflation and bad deflation. So that’s my objection to the 2% inflation target for all seasons. In the late 1800s, during the industrial revolution, we had 3% deflation and we were growing at 8% real. So I don’t know where we are — I don’t know whether we’re at zero or negative — but I wish we’d stop worrying about it, because we’re in a productivity shock and this thing can’t be measured. To sit there and count decimal points, at least until the economic statistics catch up with what’s happened — the preciseness, I just think, is misguided.
Joe: But if this didn’t exist 15 years ago, how much is it worth? What is this thing capable of? I have the Encyclopedia Britannica everywhere I go — I mean, I don’t even know what it does on this thing.
Druckenmiller: Well, if you mention the Encyclopedia Britannica — you used to pay for that, and it added to GDP. So relative to now, that’s a negative. Some of this shows up in advertising, but a lot of that is coming out of TV. And the whole value — there’s no way to capture it. Your point is that we’re not correct — the Fed is not correct — to fear the Japan scenario in this instance?
Joe: Right.
Druckenmiller: No, not at all. It explains why Treasury yields are where they are — that’s the problem. And this whole obsession with the zero bound — you know why we’re at the zero bound? Because they put rates at the zero bound. We have never had deflation that I can find that started because we were near the zero bound. We’ve had deflation in every instance because there was an asset bubble. So if I were trying to create deflation — like I’m some evil Darth Vader saying, “Let’s create deflation” — I would have done exactly what the Fed did from 2012 until a couple of years ago.
Joe: I’m completely confused — do you feel good about things right now, or bad?
Druckenmiller: I’m worried about the long term, because I don’t like the victory laps about how great things are. We’ve used monetary policy to create a lot of buildup — and by the way, I haven’t even gone into what the government has done at full employment. No one would mind if the Fed hadn’t been running policy to enable these guys. And then you have President Trump running around saying, “Well, we need to keep interest rates low because the debt is high.” Well, Jesus — why do you think the debt is high? And if you want the debt to explode more, just keep interest rates low. I’m concerned about the long term. As a practitioner, my central case is that we’re not going into a recession — but I’m worried about it. And with the new view from the Fed, you know, I’m a liquidity guy. I’m not that worried about markets right now.
Joe: Not that bullish either — you’re not nearly as invested. Bullish on productivity and innovation and capitalism, though — if we have to choose a billionaire, at least we’re not talking about how capitalism is broken. There are some good things happening in terms of innovation. But you let the free markets work and it gets pretty exciting. Your problems with entitlements — there are a lot of people who think the answer is more government, not less.
Druckenmiller: And Joe, one of the things you and I disagree on deeply is climate.
Joe: We do, okay.
Druckenmiller: What we probably don’t disagree on — the Green New Deal is so over the top, I’m not even going there. But if you’re going to finance this stuff they want to do — this is seared in my brain. Forty years ago, government investment used to be 30 cents of every government dollar spent. Now it’s 15 cents. Entitlements used to be 28 cents of every government dollar spent. Now it’s over 70 cents. If you want to do this new stuff, the answer isn’t to raise everybody’s taxes, because in my opinion that’s going to cause damage. You go where Jesse James went — you go where the money is. And the money is in entitlements. There’s nothing productive about transfer payments, and they’ve got to be dealt with. I wish the young people out there would understand that there’s no free lunch. If you want all this stuff, the answer isn’t to raise taxes — you’re going to kill the economy and there’s going to be nothing for anybody. The answer is to take some of it from old people like me. Can you believe I’m getting a Social Security payment? I mean, that program was set up as a safety net — and the way it’s being run now is ridiculous.
Joe: You’re not talking about just taking away from billionaires though — you mean means-testing from anybody who makes over a certain amount of money on Social Security?
Druckenmiller: Yeah. And by the way, if you need to do a payroll tax that specifically addresses that — that’s okay too. I just want it addressed so the next generation doesn’t get zero. And it’s funny — one thing Hillary and Donald Trump agreed on was “We’re not going to touch entitlements.”
Joe: Yeah, it’s amazing to me. Well, we’re going to offer you a CNBC contributor position.
Druckenmiller: I’m going to decline.
Joe: But we can have you on at least once a quarter? I mean, there’s some money involved here with the CNBC contributor…
Narrator: With Republicans controlling the Senate, there’s no guarantee we will succeed.
Bernie Sanders: What we need is Walmart — the largest private-sector employer in this country — to take a bold step forward and say that all of their employees should live with dignity.
Narrator: That’s Bernie Sanders confronting Walmart over minimum wage, advocating that the retail giant should pay its workers at least $15 an hour. Let’s talk minimum wage and much more with our special guest today, Stanley Druckenmiller, CEO of Duquesne Family Office.
Joe: Stan, you saw what Bernie had to say — you were watching this week as it was coming out, and you sent us an email. I got you a little fired up. What do you think about it?
Druckenmiller: Well, first of all, on the minimum wage — we just had a discussion about innovation but didn’t go into the cloud. To me, the choice isn’t minimum wage versus a living wage — it’s minimum wage versus no wage. If you want to hurt workers, with technology as the alternative, jack the minimum wage up enough and you’ll have job losses as a result. So it doesn’t make a lot of sense to me. But the thing that really enraged me — that “Comrade Sanders” said — was his comment about charter schools. I’ve spent the better part of my life… one of the great joys of my life was meeting Geoffrey Canada. It’s funny — to have met Geoffrey Canada and Ken Langone and to have had them both in my life for over 30 years. I mean, what a privilege and what luck. But getting back on topic — when he says he’s against charter schools, I know the man just doesn’t care about inequality. All he cares about is power, because charter schools are disruptive to the teachers unions even as the African-American community overwhelmingly supports them. And the only way you get out of inequality is with education at the early level, and giving everybody in this country a shot. Believe me — this myth about pulling up your bootstraps — that’s fine for 95% of the population. But there are communities out there where kids have no shot because the public schools are so terrible they’re never going to be able to compete in our economy. For Sanders — I assume he’s in the pocket of the teachers unions — how in the world can you be against charter schools if you’re serious about the inequality issue?
Joe: And we should tell people about the work you’ve done in Harlem. How long have you been there?
Druckenmiller: Well, I met Jeff in 1993, but it’s Jeff’s work, not mine. We’re serving 13,000 kids and 25,000 families in 100 blocks of Central Harlem. We’ve moved the needle on every single metric. You just drive up there and look at pictures of 25 years ago — you won’t even believe what’s happened. Our biggest problem now is gentrification, which is a high-class problem. And what’s really cool is that the Harlem Children’s Zone model — which, by the way, is Geoffrey Canada’s work, not mine — is being replicated in communities all over the country. Obama’s Promise Neighborhoods started it. So we’re not just affecting 13,000 kids up there — it’s becoming a nationwide thing. And I think it’s one of the answers to the whole inequality problem. It’s very exciting.
Joe: When you see hundreds of millions of dollars poured into a system like the Newark school system without really decent results to show for any of that — what do you think?
Druckenmiller: It broke my heart. But I hate to say it — I know you’re going to have viewers who passionately disagree — but I’m just not a believer in government being the most effective actor. This whole tax debate is interesting, because I really do understand why people want higher taxes and think that’s the solution to inequality. But you also need to understand — I’d much rather have a Geoffrey Canada implementing programs and using his talents through private-sector donors who hold his organization accountable, rather than letting the government just —
Becky: But to be clear — you think that’s a solution for the five percent of communities where you’re not getting decent public schools? You don’t think this applies more broadly? I mean, I’m a product of the public schools for most of my life. My mom was a public schoolteacher. My kids are in public schools.
Druckenmiller: In Harlem, one of the big misperceptions about Harlem Children’s Zone is that we’re a charter school network. That’s a small piece of what we do up there. We have Baby College, we have pre-K, we have employment and technology centers — basically from cradle to college, we’re all over these kids and all over the process. We deeply believe in public schools. That’s not what I’m talking about here. I’m just saying there are kids who need a shot, and it cannot be done just through charter schools. And by the way, if there are charter schools that are not performing, they should be shut down.
Joe: What do you think of Bernie Sanders and other candidates who are now on the campaign trail basically saying: you need free college, you need universal basic income, you need universal health care? How do we deal with those issues, and what happens in an environment where things are so charged?
Druckenmiller: Well, I just don’t believe in any of that. One of the problems with college is that it’s been subsidized through student loan programs, and what’s happened is it hasn’t helped the student — the psychology is just to keep raising prices. And these students come out in debt. But all this sounds wonderful, Becky — universal health care, free college — but you’ve got to pay for something. I started my career in the 70s. There were a lot of people who thought the Soviet Union was the answer. I’ve watched socialism in various forms my whole life. The latest example is Venezuela. The people who think this is the way to go should go down to Venezuela. Actually, they shouldn’t — they’d probably be shot. Ken Langone was with me last night and pointed out a statistic I had not heard: the average Venezuelan lost 34 pounds last year. I mean, that’s what you’re dealing with. Look — I know capitalism isn’t perfect. I know there are issues. But the alternative — I’ve seen this movie before, and I don’t want to go down that route.
Becky: Although the alternative being presented is not centrally-planned dictatorship like in Venezuela — it’s a bigger safety net, widening entitlements and paying for it through higher taxes. It’s not to say the government—
Druckenmiller: Of course it’s through government. The health care system — very simply — they want Medicare for All. Medicare is going to go bust, okay? So let’s make it even worse and do Medicare for All? Why is Medicare going to go bust? Because the way the thing works right now, we don’t know what we pay for our health care. Until consumers have choice and understand what the cost is when they go to a doctor, this thing is just not going to get better. I understand what you’re saying — but I’ve seen government in so many forms. Let me give just one small anecdote. When we started the pre-K program at the Harlem Children’s Zone, we called it Harlem Gems. I’m very proud to say that in 12 years — with 15 to 20 percent of the kids homeless, a lot of special-needs kids — one child out of 12 years has not been school-ready at kindergarten. So it’s a great program. We started it in about three to six months. And across the street, we have a Head Start program. I love the Head Start money — I think it’s a great program. But it didn’t take us three to six months to start — it took six years. And we fill out a questionnaire every quarter — 1,700 questions from the government about compliance — and not one of those 1,700 questions is about student outcomes. Is Head Start better than nothing at all? Yes. And those kids are having similar outcomes to the kids across the street. But I’m just talking about the delivery — everything: where you get government versus the private sector involved, the answer has always been the same.
Druckenmiller: I’m gonna shock you — I kind of agree with Biden. I don’t really think capital gains tax reductions promote investment as much as advertised. It’s hard for me to believe Larry Page, Mark Zuckerberg, or Jeff Bezos said, “Oh my God, the capital gains tax is going to be 35%? I’m not gonna try to found Amazon or Google.” So I don’t have a problem with raising it. But I’d probably want to fix entitlements and debt with the money rather than expand entitlements. And a fiscally conservative approach would also not include tax breaks for buying used corporate jets — I get the new jets, somebody has to make them, you get employment — but used? There’s all kinds of stuff in the tax code.
Becky: The problem with a capital gains hike — and I don’t really know the answer — is it might not raise that much revenue, right?
Druckenmiller: And I’m not into something just because it’s “fair.” But frankly, I kind of agree with Biden. But I did want to say this — you know how we could solve inequality very easily? Just do something disastrous to the economy. The stock market would go down 40%. We’d all be much more equal, because everybody would be poor — but the rich would have lost a lot more wealth than the poor. And in fact that’s exactly what happened in 2008 — we had the biggest decrease in inequality since then. That’s the problem with this whole argument. A little-known fact — because the media doesn’t want to put it out there — is that real wages have gone up under Trump. It’s the first time it’s happened in, I think, 40 years. We all know African-American employment is up — because President Trump tells us every 10 minutes. So the bottom is doing better. The problem is the top — the differential is getting even bigger. And even though envy is one of the seven deadly sins, it’s one of the most powerful human emotions. So the narrative about inequality is correct — but one piece of the story is left out: that everybody is doing better. I don’t believe the way to solve this is “let’s just ruin everything — then everybody will be more equal.” But the inverse of that — a conservative saying, “Well, growth will solve everything” — in fact, during high-growth periods inequality increases. So growth doesn’t solve inequality either.
Joe: I am shocked, though, that you’re saying you would support a higher capital gains rate. You’re a guy who makes a large share of your income from capital gains.
Druckenmiller: Some is short-term, but I have had substantial capital gains. I’ve never been big on the debate about what the rate should be. Should it be taxed the same as income, at 37%? There was a time when they were the same. I wouldn’t have a problem with that. But then don’t tell me you’re going to raise the capital gains rate to 37% and also raise income taxes to 50% — it’s going up on both sides. As far as I’m concerned, what we did wasn’t tax reform. We did some tax reform in ‘86 — this wasn’t tax reform. The thing became even more complicated. But I would have no problem with normalizing capital gains. To me, you don’t want to raise any taxes unless you’re actually going to raise revenue.
Joe: Do you think the marginal income tax rate is at the right level right now?
Druckenmiller: I don’t know. I’m a Laffer curve guy. I don’t know where we are — we know it’s between zero and a hundred. But if we do anything with increased revenue, spending should still probably be cut, and we need to address entitlements. We don’t even need to cut entitlement spending — we just need to slow them down or make them grow at zero. Entitlements are still growing at five or six percent a year with nominal GDP growth less than that. They’re still gaining. And by the way, we haven’t even gotten into the real demographics — the gray boom. I talked about this twelve years ago. I thought the real consequences wouldn’t hit until 2025-2030. I said this in 2012. Well, it’s not 2025 yet, but we’re getting there.
Joe: And we talk about it quite a bit. If you look at the basic thrust of the 22 Democrats running right now, it is entitlement expansion — that’s the whole thing. But the big debate in this country right now is whether socialism is more effective versus capitalism. We’ve interviewed a number of billionaires on this program. Jamie Dimon defended capitalism in his annual letter in April, writing: “I’m not an advocate for unregulated, unvarnished free-for-all capitalism — but we shouldn’t forget that true freedom and free enterprise capitalism are at some point inexorably linked. Socialism inevitably produces stagnation, corruption, and usually tyranny.” And a few days after Dimon published that letter, Ray Dalio spoke out on this very same issue.
Ray Dalio: [from clip] I didn’t say “broke” — I said that it needs to be reformed. I’m a capitalist. I’m a professional capitalist. The system has worked for me. I didn’t have anything, and then I got something through the capitalist system. And capitalism means the ability to save and invest in capital markets and private enterprise — and I’m supportive of that.
Joe: We tried to pin him down on exactly what he wanted to do with it. Comments on that?
Druckenmiller: I don’t know if you saw the whole interview with Dalio — I didn’t see it. Let me just say: capitalism isn’t perfect. But it’s lifted billions of people out of poverty, and to me it’s proven to be the best system we’ve had. My problem with today’s narrative is that we’re not actually doing capitalism right now, as I see it. We’ve been moving further away from it — further away through trade wars, further away through manipulation with crazy monetary policy, and we have all this crony capitalism with lobbyists in Washington. So for the last 30 years, I think we’ve been moving further and further away from what I would call capitalism. But that’s not the debate. The debate out there is capitalism versus socialism. And we’ve seen that movie, and we know how it ends. I just don’t get it.
Joe: You talked about Google, and we need to bring up what’s also been happening lately — the big pushback against how great these companies are, how big they are, how much they’re involved in our lives. Capitalism produced some of these great innovations. Are these guys too big, too powerful now? Do we need to take a look?
Druckenmiller: Look, they’re big. But first of all — they’ve now got enemies on both sides. Let’s take President Trump first. I don’t happen to be a nationalist — I’m a globalist. And I don’t know what I think about economic wars. But if I was going to have an economic war with China, and I was a nationalist, the last thing I would be doing would be attacking our best companies for the next 30 years, which are the AI leaders: Google, Facebook, Amazon. You’ll notice, Joe — about a year ago, China had gotten quite tough with their own private sector. And then the minute the trade stuff happened, they pivoted. They got rid of Jack Ma and then became very friendly to Alibaba. They started reducing restrictions on everything Tencent does. We all know what they’re doing with Huawei. So they’re nurturing the companies that are going to compete with us in the next 30 to 40 years. Because let’s not be naive — this is all going to be about AI and technology. And what are we doing? We are attacking our companies that are the leaders in this stuff. But man, it’s great — we’re supporting our steel industry, our coal industry, our aluminum industry. Way to think about the future. Just genius.
Druckenmiller: Now let me take the other side. The Democrats — President Trump says these are all left-wing liberals running these companies; his words, not mine. So the Democrats hate them because they’re convinced that Facebook’s platform got President Trump elected. That’s complete nonsense. President Trump won the election because more people voted in the right states for him than voted for her. The Facebook ads are just dwarfed by everything else. I just do not understand the emotion over this issue. Then you’ve got the whole privacy argument. Very simple to me — if you don’t like what Google does with your privacy, don’t use Google. Don’t go on Facebook. And good luck to you — if you want to go to another search engine, you could put Google on the fourth page and people would still use it compared to the alternatives.
Joe: Because I’m old enough and stupid enough that I hit the wrong button and I get trapped in one of those other search engines, and I go crazy at how bad they are. And I’m too stupid to know how to get out.
Joe: But you’re pointing out how powerful these companies really are, and consumers have benefited. Have startups been hurt by the monopoly power of these big companies? Is competition being hurt?
Druckenmiller: Around the edges, we could make some changes that make it fairer — yes. I think these companies are awesome. Look, I’m a capitalist, and you can have monopoly power that becomes punishing for capitalism. We’ve never had to deal with the networking effect that the Internet has created. And absolutely — when you see acquisitions made to eliminate competition, that’s something to seriously think about. But the narrative that Google is gouging on prices — first of all, their products are free. And “they’re anti-innovation” — this is one of the most innovative companies in the world. If there’s a reason not to own it as a stockholder, it’s that they’re spending so much money on crazy stuff trying to advance science. So I don’t like that narrative either. But I do agree — if they’re buying companies to eliminate competition, there’s stuff we can do there.
Mike: You make a persuasive case that we shouldn’t be targeting these companies. As an investor and a trader though, what do you foresee in terms of whether this is going to affect their valuations? Do you fade this trend and think it’ll blow over, or do you think it’s going to be with us for a while?
Druckenmiller: Well, Mike, I don’t think they’re going to break up Google. And if they do, it’d probably be worth more — the sum of the parts. Facebook would be worth less because Messenger and the platform are all integrated. Amazon — you could argue it’d be worth more. You’ve got AWS over here, probably worth $500 billion by itself. So I think it’s debatable. It does make investing in all of them more challenging. But we’d have to literally change the law to win a monopoly case against somebody whose products are free.
Joe: Well, they’re free and you’re not giving them exclusive rights — there are no wires in your house or anything like that.
Joe: I don’t want to run out of time, but — are you now worried that Trump is going to lose? Because you’ve analyzed the data in Pennsylvania and Michigan?
Druckenmiller: I think he’s in bad shape. I think he will win if he runs against Comrade Sanders or Elizabeth Warren, but it’s very very difficult for him to beat any centrist candidate.
Joe: Is it because of crazy behavior, or because the tariffs are hurting the auto industry and other places?
Druckenmiller: I’d say a lot of it, Becky, is behavior — soccer moms. He doesn’t need to lose one. Don’t forget he won these states by less than half a percent. My old stomping grounds Pittsburgh has gone blue because high-tech moved in and it’s booming. He can’t win without Pennsylvania.
Joe: He and Pence keep talking about the booming economy. If you don’t think we’re going to be booming in 18 months — and that’s clearly a risk — I don’t see how he wins. I don’t know what the narrative’s going to be.
Becky: If it’s more likely a Biden or a moderate — but if one of the more progressive ones did win — what would happen to the stock market if Bernie became president?
Druckenmiller: I think stock prices should be 30 to 40 percent lower than they are now. The good news is we’d all be much more equal — because everybody would be poor. But the rich would have lost a lot more wealth than the poor.
Joe: I don’t think Bernie Sanders could win the general election. But stranger things have happened. The young people love him.
Druckenmiller: The young people — how can you be under 30 years old and vote for Bernie Sanders, who wants to give more money through entitlements to old people? I just don’t get it. Old people could be living to 100 — and they could bankrupt the entire system.
Joe: All right, we’re going to go a little further. All I want to get to is back to the market outlook. Do you think Trump is able to successfully deal with both China and Mexico in a way that the stock market can take advantage of these lower interest rates and head higher?
Druckenmiller: I feel very strongly that the secular growth companies — cloud, payments — have enough runway that they can grow just as fast in a 1% economy as a 3% economy. And those companies are unequivocally worth more with rates at 2.15% than they are with the 10-year at 3%. I also feel very strongly that there’s a risk the economy slows down a lot. And if it does, there are a lot of cyclical companies that are worth less if interest rates are at 2.15% — because they have negative earnings leverage hitting them very quickly.
Joe: You said you were 90% invested until that early May China tariff tweet, at which point you bought a lot of Treasuries and closed out some positions. You came back in earlier this week, only a little bit —
Druckenmiller: Unfortunately. I wish I’d bought more.
Becky: You came back into the equity markets a little. What percentage? If you were at 90% before —
Druckenmiller: I’m at 15%. And you’re a very smart lady, but it’s not a great question — because I could be very different on Monday. Your viewers should take nothing I say on Friday seriously about where I might be on Monday or Tuesday.
Joe: Jobs numbers — important today?
Druckenmiller: I think they’re very important. There’s a technical thing — when you have five weeks in May, that could bias the number upward in the seasonal adjustment. They’re important only because they affect the Fed. I don’t use the job numbers to predict the economy — it’s unbelievable, the obsession with a lagging indicator. I use them for entry and exit points to fade. But I think if the job number is weak, given everything else they’re saying, the Fed will be on a clearer easing path by July.
Joe: Stan Druckenmiller, thank you for spending so much time with us. A long time coming — a lot of begging, a lot of whining, a lot of cajoling.
Druckenmiller: Thank you for the opportunity to talk to your viewers. It’s been a lot of fun.
Joe: We’ve really appreciated it. Hope it was a great experience for you.
Druckenmiller: It was wonderful. Thank you.