Druckenmiller on 2020 Outlook, Monetary Policy, U.S. Election
Transcript
Eric: Stan, how do you feel going into 2020 about the market?
Druckenmiller: Sure, yeah. I’ll share my thoughts on the markets, the economy — we could talk about other areas too, if you like.
Eric: What’s not going well?
Druckenmiller: Well, you have very low unemployment here, you have fiscal stimulus in Japan, you have fiscal stimulus and a lot of confidence coming in Britain, we’re running a trillion-dollar deficit at full employment, apparently we’re going to have some sort of green stimulus in Europe, and we have negative real rates everywhere and negative absolute rates in a lot of places. So with that kind of unprecedented monetary stimulus relative to the circumstances, it’s hard to have anything but a constructive view on market risk and the economy intermediate-term. So that’s what I have — because everywhere you turn you’re being encouraged to take more. I don’t need to take more, I have enough. But I’ve always believed that expansions end usually with tight monetary policy or credit problems, and I think what we’re doing is definitely borrowing from the future and we’ll probably end badly, as the 2007 period did. But that could be years — I’m 66, I might be dead by the time it happens.
Eric: So the intermediate-term technicals are good?
Druckenmiller: Breadth is at an all-time high, economy’s fine. And if anything, our biggest problem going in — once the Fed shifted away from their QT and tightening program — our biggest problem was obviously global trade. I’m not saying everything is all peaches and roses now, but certainly on a rate-of-change basis, if anything there’s a de-escalation, not an escalation, there. So for now, all systems go.
Eric: So you’re constructive — all systems go. How are you expressing that in your portfolio?
Druckenmiller: Well, I’m long equities, I’m long some commodities, I’m short fixed income, and I’m long commodity currencies, short the yen. So all sort of — for now — betting on a benign economic outlook and a benign market outlook. But as you know, Eric, I tend to change my mind. So that’s for today — hopefully it’ll last at least a couple of weeks.
Eric: Let’s be a little more specific, if we can. Short the yen, commodity currencies — I’m assuming Canadian dollar, Australian dollar?
Druckenmiller: That’s very good. Anything else I’m missing? I have some New Zealand lying around, I even have some Mexico lying around. They’re not big, massive positions, but they’re enough to matter in my non-competing world. I might have more if I’d still had clients.
Eric: Commodities have been unloved for an awfully long time. What do you own?
Druckenmiller: I own copper, believe it or not. Basically, I think on the margin — as I just described — particularly with fiscal stimulus and monetary easing at the same time, and a diminution of trade worries, the global economy is going to be better than the IMF thinks. And copper has a little extra kicker relative to the other ones. We think that EVs probably add 0.5% a year in demand, and the supply outlook is challenged — likely to become more challenged if the Chile situation doesn’t clear up. But that’s not why we own it. We don’t own energy — probably should, but I just think the demand outlook is so challenged long-term, I’m just not that interested. If you like commodities short-term, it kind of makes equities challenging, because they’re a long-dated asset, and hopefully we’ll go greener and greener. I am on the board of the Environmental Defense Fund, so I’m perfectly happy if oil doesn’t go anywhere.
Eric: In the stock market, anything particular you like?
Druckenmiller: It’s interesting — when we met a year ago, my portfolio was heavily growth-oriented, particularly in the cloud: ServiceNow, Microsoft. The theory being there’s like a 10-year runway and these companies would grow very well in a low nominal growth world. I still own that stuff, but my mix has changed dramatically to stuff that will do well in a higher nominal growth world. So I have banks, financials, I own Japanese stocks. I wouldn’t call it a mix dominated by value, but it looks more like a normal mix — not just concentrated into companies that would do well in a low nominal growth world.
Eric: Short fixed income — which I interpret as short the Treasury market. What a difference a year makes.
Druckenmiller: Yeah. Last year, around this time, the Fed was about to do a hike. And Jerome Powell also followed that up by saying quantitative tightening — shrinking the balance sheet — was on autopilot. And I think their dots called for four hikes. I thought those were inappropriate. I looked at the transcript from last year’s interview — I think we were long quite a few Treasuries — so it’s almost the exact opposite view for the exact opposite reason. I don’t think Jerome Powell will have the courage to raise rates next year. It’s a lot easier to change your mind from a tightening to an easing mode. But I definitely don’t think they’ll be easing. It’s kind of absurd — when you look at where nominal growth and real growth in this country are, and you look at unemployment and all the other circumstances, to have rates at one-and-a-half percent. If I came down from Mars and you showed me the broad landscape and asked where Fed funds would be, I’d probably guess three and a half somewhere in there.
It’s actually quite remarkable, because the Fed has continued to talk about this mid-to-late-’90s period where they were doing “insurance cuts.” I remember running Quantum at Soros. In ‘98, credit completely dried up with Russia, and it looked like the Asian financial crisis could spill over into America. Greenspan cut three times — twice in October, once in November. The stock market went to a new high and took off. And since he was “insuring” against the Asian financial crisis, he took back the insurance. By the way, he had cut rates three times from 5.5% to 4.75%, and then he started hiking. So the most fascinating thing about the recent press conference — and the one before it — was that some reporter cited this period and their use of insurance cuts as a model, and said: “Chair Powell, what happens if the trade war de-escalates and it’s no longer that big of a worry — and what if Brexit is solved? Would you raise rates?” And he said, “Absolutely not.” And the guy said, “Well, why? That’s why you cut them.” He said, “That was insuring against this.” And then: “Well, because the inflation rate is much lower now, and we didn’t have the risk of deflation back then.”
And Eric, that didn’t sound right to me, because I remembered distinctly that period — Greenspan running the great experiment with a booming economy with no inflation. I looked back, and the core PCE was 1.5% in ‘98 and ‘99 when Greenspan started raising rates again from 4.75%. It’s currently 1.7%, and Powell has them at one and a half. I mean, honestly, I don’t get these guys. Last year, when we met, no credit had been issued for a month, the stock market was down 10%, economic conditions were a meltdown — and they hiked, and they called QT autopilot. Now, credit conditions are booming, we have a new IPO every day, the stock market’s at an all-time high, unemployment’s at 3.5%, confidence is picking up — and we just did three cuts. So it’s like these guys are pretty hard to figure.
Eric: I want to ask you some more questions about the Fed, but before I do — we haven’t talked about your favorite currency. Were you long the pound heading into the British election?
Druckenmiller: I was. It is my favorite currency. I’m very good friends with Johann Rupert, and he told me — he calls her “Mrs. T,” and that’s Margaret Thatcher — he said, “You know, when I met with Mrs. T, she said, ‘Never underestimate the common sense of the British people.‘” And I just felt that they were not going to go for socialism. Frankly, when I look at what’s going on in Europe and then I look at what’s going on in Britain, I was always sort of a Brexiteer, because they did perfectly fine for five hundred years without that union of countries down there who seem to all hate each other and can’t make a decision on anything. So I think this is going to be actually very good for the British economy. I separate myself from most on that. I think Boris Johnson is sort of a smarter version of Trump without some of the antics to go along with it, and I would expect investments to fly into that country. I think they’ll do very well.
So, you know, it’s funny — if I were to tell you: there’s a Republican president, but a better version; you have two-thirds Republican majorities in both houses of Parliament; a deficit-to-GDP of two, not four and a half; a debt-to-GDP lower than the United States; twelve times earnings and a four percent yield — it sounds like a decent place to invest to me. So we not only had the pound — and still do — we had the British financials, the banks. We have some Barclays, Lloyds, that kind of stuff lying around.
Eric: “Lying around”?
Druckenmiller: Well, I don’t take big positions anywhere. I’ve become a coward since I stopped competing. But enough that it gave me a smile on Friday.
Eric: Let’s go back to the Fed. You’re a frequent critic of the Fed, and have been over time, for reasons you’ve articulated well. But do you feel, Stan — any more confident about the direction of monetary policy today than you did a year ago?
Druckenmiller: No, I feel much worse. First of all, if you remember, a lot of the debate a year ago was about quantitative tightening. And despite the fact that at least the seven or eight previous times we had done QE, bonds had gone down and stocks had gone up — John Williams and some others said that QE and QT had no impact on markets. And frankly, we switched from QT to QE, and what happened? Bonds are going down in price and equities are going up. But, you know, it was just luck — eight out of eight.
But the op-ed I wrote — we said “don’t raise rates for now.” This was back in December. Yes, our interview was the day before the hike. We weren’t saying to cut them. And one of the things we said in that interview is: if you hike now, you may get really scared and have to start cutting and do something drastic the next year — which of course they did.
I’m not sure why, but I think it’s always easy to be easing when things are great, and you just feel like you’re the cat’s meow. You’ll remember Bernanke claiming victory in ‘04 with the “Great Moderation,” and Greenspan was a “maestro.” But I will go to my grave believing that that financial crisis happened because of bubbles created by easy money. And I just don’t understand why we need interest rates where they are now. We were trying to normalize — okay, things got too tight, you should back off — but you don’t need to go the other way to the extent we’ve had. And then this crazy president saying we need negative rates to compete with negative rates in countries where they clearly aren’t working — they’re not growing as well as we are. It’s the most anti-capitalist idea I could ever dream up, and he’s pushing Powell. I didn’t want to believe this, but it’s pretty clear now that he’s had an effect on Powell. And of course the media goes, “He’s really standing up to him” — well, with words, not with actions. In action, he’s been cutting and doing the president’s bidding. He hasn’t gone negative — God help us.
Eric: Some people say he deserves high marks — whether it’s the media or others — for resisting some of that pressure from the White House. What grade would you give Jay Powell as Fed Chairman?
Druckenmiller: Not a good one. I don’t think he’s resisted anything.
Eric: Well, rate him against Yellen, Bernanke, Greenspan.
Druckenmiller: He’s a weaker version of Yellen without the monetary framework. Bernanke and I philosophically disagree about easy money and helicopter money, but the man had conviction and he controlled the room — which I think is really important in a Fed chair — and I don’t see that here. And of course, let’s not compare him with my true hero, Paul Volcker — the late, great Paul Volcker. Powell cited Volcker as a hero, and I couldn’t agree more. It’s too bad we don’t have some of that kind of courage at the Fed today.
Eric: You brought up your friend Kevin Warsh, with whom you wrote the op-ed arguing for the Fed to pause and not raise rates — as it subsequently did raise in December 2018. Kevin is considered a candidate for the job of Governor of the Bank of England. Do you think he’ll get it?
Druckenmiller: I don’t know whether he’ll get it, and I don’t know whether he wants it. I don’t know anything about this. But I hope for my sake it’s not true, because he’s been a trusted advisor. Who knows? Not me.
Eric: Stan, tell me what you think of Christine Lagarde as the new ECB president.
Druckenmiller: It’s early days yet. She’s a lawyer. I think it’s way too early to judge her. I’m a little taken aback by linking climate change with monetary policy — I am on the board of the Environmental Defense Fund, so I’m a greeny — but I think there are other venues to address climate change through, and it shouldn’t have anything to do with monetary policy. But who knows how strongly she feels about that. It’s early days, and I think we should give her the benefit of the doubt. Ask me in a year — if we’re still here.
Eric: Central bankers — whether it’s policymakers at the ECB or for that matter members of the FOMC — seem determined, at whatever cost, to bring inflation back to 2%. In Europe it’s meant negative rates. Here they’re now beginning to talk about inflation averaging — a catch-up period if it hasn’t met the 2% target for a period of time. Do you think negative rates necessarily work, or is inflation averaging necessarily a good idea? First, I want to know whether you think inflation matters anymore.
Druckenmiller: Well, first of all, there are 14 recognized measures of inflation, and 12 of them are above 2%. Their preferred measure — the core PCE — is at 1.7%. The risks they are taking with regard to misallocation of resources, bubbles, all that stuff — because something is at 1.7 as opposed to 2 — and now they’re talking about a make-up period. First of all, monetary policy is supposed to look forward, not backward. So why are we looking backward? And if there’s a make-up period after inflation was 10% in the ’70s, why didn’t we have a target of minus 10% a year in the ’80s? We’re talking about decimal points here — about something, Eric, that you can’t even really measure. And I’d like to remind everyone: there is no mandate for 2%. The mandate states very clearly: price stability and full employment. I live in this country, and so does the Fed. And I don’t know how 1.7% is not the greatest success ever if we’re talking about price stability. So this thing about it being “the greatest challenge of our time” to get from 1.7 to 2 — when we don’t even know whether it’s 1 or 3 — the measurements are so random. I just find it astonishing.
Eric: We’re living in a time of technological advancement — all kinds of new innovations that are creating deflationary pressures, surely reflected in that 1.7%. Whether you think it’s adequately or accurately measured, where does that fit into your thinking about the importance of inflation at all?
Druckenmiller: I’m glad you asked. You know when the last big technological revolution was? It was the late 1800s, and we had 3% deflation and 8% real growth for ten years. I remember talking to a central banker — medical care is 19% of GDP here. What if you found a way, either through co-payments or whatever, to get the consumer to respond to price? And then you used our technological wunderkinder — so let’s just call it, for no better term: what if we “Amazon” the whole medical system, and you drove the cost of healthcare down from, say, 19% to 13%? (It’s 11% in most other countries.) Would the Fed then panic because it sends the CPI under zero? Is this some horrible thing — the greatest crisis of our time? No. And I would say the same thing about all this stuff more broadly. You have these magnificent productivity increases going on right now at the corporate level because of cloud computing and so forth. There’s nothing pernicious about deflation if it’s driven from the supply side. I don’t see people walking around saying, “Oh my God, I’m not going to buy a car this month because it might be cheaper in three months.” And by the way, we haven’t even had deflation — it’s just this imaginary thing that it’s not up to their 2% arbitrary target.
Eric: This obsession — if we can call it that — with inflation has driven these insurance cuts and helped once again to reflate financial assets. 2019 was an extraordinary year for investors. How did you do?
Druckenmiller: Not as well as I’d like. I just got into double digits last week — I wasn’t even able to say that before. I’m just too conservative in my old age. I was well-positioned, but very timidly — I’ll leave it at that.
Eric: Why are you timid? You’ve got nothing to lose.
Druckenmiller: I have a lot to lose — that’s one of the reasons I’m timid. When I was competing and managing other people’s money, I’m a very competitive person and I felt the compulsion to take risks. I’m still a competitive person, but it’s either that or something about my age — I don’t trust myself. Or, in the last year in particular, I’ve just never trusted this administration not to do something that would preclude me from taking positions that I just felt were safe and secure, all-in risks. I think unfortunately a lot of people probably felt the same way. As you know, people have actually sold equities and put them into bonds this year. I didn’t do that — I was just timid about what I did do. But this administration — with wondering about where the hell the next bomb is coming from — just doesn’t allow me to take some of the positions I’ve taken historically where I just thought it was a one-way bet. To me, this was always binary — it became a two-way bet.
Eric: It’s not just policy uncertainty — it’s something else. How would you describe it? “Policy uncertainty” is a great term.
Druckenmiller: One of the reasons I’m pretty sanguine right now is I think we’re close enough to the election — at least we can breathe for a few months. I don’t expect any dramatic policy that can overwhelm the favorable backdrop of monetary stimulus in a decent economy.
Eric: You describe yourself as being timid — maybe we’ll use the word “cautious” — in part because you’re no longer competing. There are still lots of people who are competing, and yet many of the greatest fund managers we’ve seen in our lifetimes are struggling to generate good returns. Why?
Druckenmiller: Well, if you’re talking about the macro community, the biggest problem has been that there just aren’t the opportunities there were in the 1990s. Because with central banks suppressing interest rates, there hasn’t been the sort of one-way, high-risk-reward bet there once were. I remember when the Bank of Japan inappropriately tightened after a big bubble — I bought Japanese bonds at 7%, a lot of them, when I was at Soros. Now, are you going to go plow into the 10-year at 1.9% or whatever it is? No. But you might think rates are going down, so you just take a lesser position. I also think a lot of them seem to be led around by the nose by the Fed — they talk about the dots and they obsess over them. I always made my money when I felt differently from the Fed and went in the other direction — because once the Fed changes, you make money. The Fed has been very wrong on the economy, on the markets, and on policy. And I think those who followed them — that’s a problem.
The other thing that has obviously happened is you’ve suppressed currencies. But there are plenty of great young money managers who are killing it now. They’re mainly in technology stocks — they were long the disrupter and short the disrupted. We’ll see what happens now, if the world is changing the way I think it is.
Eric: Who impresses you among the current generation of young investors?
Druckenmiller: I won’t say, because someone asked me that seven years ago and I think I cursed the people I answered. But let me say this: I think one of the reasons I had the record I did is that I was the only person in my class in ‘75 who went into the securities business at Bowdoin. At the end of a seven- or eight-year bear market, no one at the elite schools was going to Wall Street. So the level of competence I was competing against in the ’80s and early ’90s made me look quite good. Once you’ve been through 20 years of a bear market, the kids who all came into the industry in the late ’90s and 2000 — not to mention the quants like Jim Simons and all those guys — they’ve all got like 50 IQ points on me. I just think one of the reasons it’s tougher is that a lot of really talented human capital has been brought in. And with the internet, a lot of the old trade secrets that I had in my head — about what leads and lags markets — now there’s a service sending like five emails a day telling you “if this happens, then that happens.” I think a lot of these investors don’t have the edge we had back then. I was extremely fortunate to come into the business — particularly the macro business — when I did, both from an opportunity-set standpoint and from who I was competing against.
Eric: You’ve told me before: quants have changed the game for fundamental investors, and people like you need to adapt. How are you adapting?
Druckenmiller: I think we talked about this last year. One of my big things — and I got beat up for it a little bit, but that’s okay — was price action versus news, and gathering price signals from the market. I think those price signals versus news were very effective for 20 or 30 years. Now, with the quants who respond to a different set of variables than we used to — I used to want to buy a stock in what I would call the “second inning,” when something’s gone up a certain amount. But their models may have figured out that it’s going to go back to the “first inning” before proceeding on its merry way. What I’ve tried to adapt to is having a fundamental belief, and if they’re creating volatility in the markets, using that volatility rather than getting abused by it. But Eric, I’m not that secure in my fundamental beliefs. I liked it better when I could just use price signals. But I’ve tried to adapt. I’m doing all right.
Eric: I’m going to hold you accountable to something else you told me a year ago. You said at the time you thought we’d been in a global bear market for a year — not a correction in a secular bull market — and it was going to be hard to escape. Was that the wrong diagnosis, or are we still in a global bear market?
Druckenmiller: Absolutely the wrong diagnosis — we were at new highs twelve months later. I’m proud of the fact that I pivoted before the highs, but I couldn’t have been more wrong. I would say until the last month or so, the U.S. was about the only one that continued in this kind of market — but no question, that was wrong.
Eric: The question is, how long is this going to last?
Druckenmiller: The answer is I don’t know — nobody knows for long enough. Maybe Jim Simons knows. I’m not sure Jim Simons himself knows, but I bet the machine he created knows — where he can sleep at night and the thing makes money for him. God, talk about an unfair advantage. It’s awfully hard, of course, to predict when the next downturn is going to come.
Eric: Do you have any idea, Stan — particularly as someone who’s made more money in bear markets than in bull markets — what will trigger it?
Druckenmiller: Yeah. If there’s a political event — a change of leadership in the White House that goes to some of the anti-capitalists — I would think that would definitely trigger a bear market. Whether it would permanently end the bull market, I don’t know, but that would trigger it. The other thing that would obviously trigger it is if by the end of this year we started to get enough inflation that the Fed starts tightening. And then, of course, the other thing is if we had a credit event. If you look at the credit markets, it’s very obvious that there are a lot of bad apples out there that are not being exposed because the interest costs are so low — by the way, one of them being the U.S. government. We’re running a trillion-dollar deficit. Why? Because we can. In fact, a lot of these new professor-geniuses think this is just a free lunch.
But I would think it’s one of those three events: (a) a political change; (b) a change in Fed policy — because who knows when inflation turns. You can come up with a theory why it would turn. I kind of believe the secular forces will hold it down, but I’ve been wrong before and I’ll be wrong in the future. And then (c) the third one — more like what happened in ‘07 and ‘08 — the bubble just collapses on itself because things have just gotten so ridiculous. I don’t think we’re anywhere near there, but I’ve been wrong before.
And you know, these things seem to happen after elections. In fact, when I first came into the business, my first boss told me: “Just buy two years after the election, and then sell the election.” And that worked for every four-year period. It worked until Bush tried to extend the cycle for the whole four years — and we blew up.
Eric: Is that what you’re going to try, heading into this election?
Druckenmiller: I don’t know what I’m going to do. I’m only going to sell when I start to see the signs. I can have all these great long-term pontificating points, but as a practitioner, I can’t really think about the very long term — but I need to be aware of it so that I can pull the trigger to go that way.
Eric: Let me go back to your point about anti-capitalists. Would an Elizabeth Warren presidency really be that bad, in your view — and in what respect?
Druckenmiller: Well, are we talking about markets, are we talking about the United States — what are we talking about?
Eric: Well, let’s start with the markets, because that’s how we got onto the point. Then you can expand.
Druckenmiller: Well, with regard to the markets, let me just put it this way: every consultant that ever studied Duquesne said I have a negative correlation to the S&P, and I do very well in bear markets. I think a Warren presidency would be very good for my business, but not necessarily good for America.
Eric: Is there a “Warren hedge”?
Druckenmiller: Well, let’s see if it happens first. But yeah — you just sell. You could just short stocks; it’s not real complicated. And you’d probably sell the dollar. I mean, there’s all kinds of stuff. But I’m kind of on the other side. And this is not just one of all this rhetoric out there — including from the business community — about “failed capitalism” and “we need to improve capitalism” and “capitalism is a failed experiment.”
Eric: So you’re on the other side — meaning what?
Druckenmiller: I think capitalism — I’m a dyed-in-the-wool capitalist who believes in free markets and believes in creative destruction. I’m just a little offended by the narrative in the media — not that it’s anti-capitalist; everyone’s entitled to their own opinion, I don’t have a monopoly on the truth — but on the facts. I don’t think most people are aware. Let’s just take poverty in the United States: it was 26% a few decades ago, it was 16% in the financial crisis, and it’s 13% now — it’s at an all-time low. Is 13% poverty low enough? Absolutely not, and it’s something we have to work on. But do you think 99% of Americans would guess too high or too low on what has happened to the change in the poverty rate over the last 15 or 20 years — much less the last five years?
Or let’s look globally: since 1990, when you had 1.7 billion people in extreme poverty, the number today is 700 million. So 1 billion people have been lifted out of extreme poverty in the last 20 years. Why? Because obviously India and China adopted a free-market model. And with regard to all this other talk about billionaires and so forth — during that same period, you’ve created 2,500 billionaires, but you’ve brought a billion people out of poverty. So that means for every billionaire you’ve created, 400,000 people have exited extreme poverty. Now, you can be for capitalism or not for capitalism — but I object to the facts out there which are simply incorrect.
I’ll give you another one. And as you know, I’m not a great fan of the president — but the fact of the matter is, this “income inequality” talk really doesn’t stand up to the facts. The middle class and the poor are doing very well — in fact, they’re doing better than they’ve done in quite some time. Are they doing well enough? No. Are they doing as good as Jeff Bezos? No. But on an absolute basis, they’re definitely improving relative to where they were five or ten years ago. And you’ll probably be astonished to know that if you take income after government transfer payments and negative taxes — which I think we all agree is the proper comparison — the top quintile has had the same percentage increase as the bottom quintile. Now, I’m not going to phony up the facts for you: the 1% have done better because they all own stocks. But in terms of the lower-middle class, for the first time they’re actually improving relative to the upper quintile.
Eric: Here’s how I would put it to you in terms of political risk: at the end of the day, Stan — does it matter? Of course the data matter. But does it matter to those people who feel screwed, or feel like they’re getting screwed? To them, all that matters is how they feel. And how they feel drives what they’re going to do at the ballot box.
Druckenmiller: Why do they feel that way? One of the reasons: because your profession goes out and validates that feeling with a misstatement of facts on a daily basis. How many times have you heard how the poor and the middle class are getting screwed? Of course they’re getting screwed relative to Jeff Bezos. But you know what — again, to me that’s capitalism. And I’d rather have a rising tide where one group is not rising as fast as another group than I would have them all sinking.
Eric: I would also posit that it’s not a binary choice between capitalism and raising taxes on billionaires — which is clearly what some people running for the Democratic nomination want to do.
Druckenmiller: Well, since most billionaires own stocks and assets, it’s hard to believe they didn’t benefit enormously from 2019. I’m all for raising taxes on billionaires. Because as you know, for years — including when I ran hedge funds — I’ve said I want to normalize capital gains, that we should be paying just as high a rate as a plumber is paying. I’ve been against carried interest, against pass-throughs — all that stuff inside the tax code. Now, that’s not officially raising the capital gains rate, but what it will do is raise taxes on the wealthy. I would also say there’s another false narrative: about how they’ve cut taxes for all the rich with the Trump tax plan. I don’t know about you — you live in New York — my taxes went up. They didn’t go down. I got a tiny cut in my rate, and I can’t deduct state and local, so my taxes went up. I’m not complaining — again, I’m just stating facts. I don’t object to the other side’s argument — I disagree with it, but I don’t object to it. Again, I don’t have a monopoly on the truth. But I really object to misstatements of facts out there. And I think it’s feeding this feeling you’re talking about — of getting screwed.
Eric: That may very well be true. But at this point, heading into November 2020, do you genuinely believe that capitalism as we know it is in question or at risk? Or is it just an argument around the edges?
Druckenmiller: I think we need more capitalism, not less. To me, when you have a president of the United States who puts hundreds of billions in tariffs and then goes and picks and chooses individual economic actors who pay those tariffs and who don’t — depending on winners and losers, exactly — it might as well be the Politburo. When you have monetary policy around the world with negative rates, you cannot have capitalism — you don’t have a hurdle rate for investment, so you don’t really have markets allocating capital the way they would under a capitalist model. That’s another version of it.
You know, it’s funny — if Trump gets reelected and things implode in the second term, capitalism will get a very bad name in my opinion, and we’ll probably have a big political response. But it will be under someone who’s sort of the antithesis of capitalism. Then you’ve got the other side, who want to vilify billionaires — which is okay — but their view is: “If I take money away from this billionaire, that means the lower-income levels are going to rise.” Eric, that’s not the way it works. That’s like Trump’s trade thinking — treating it as a zero-sum game. If China loses, we win? No — you can both lose. It’s the same thing with the economy: if you screw Jeff Bezos and he decides to take his entrepreneurship and go home — this man has created 657,000 jobs, if you take out the Whole Foods acquisition — and you reverse the economic will, we can both lose. Yes, you can punish Jeff Bezos. But how do you really hurt the poor and the middle class? Bad economic policy — that’s how you hurt them.
Eric: One of the things you’ve been doing for years — already in an effort to maybe counter bad economic policy — is give your money away. What have you been doing with your money lately, Stan? And do you think philanthropy has as bright a future in this country as it’s had the past several years?
Druckenmiller: Well, first of all, I want to be clear: I don’t give my money away because of bad economic policy. I give my money away because I can. It’s hard to explain, but I was unbelievably lucky to be born in this country. I think the odds were 23 to 1 the day I was born that I would be born in America. And I can talk to myself about how I pulled up my bootstraps or this or that — but I could have been born in North Korea or Iran — and I’m kind of guessing I wouldn’t have had the economic success I’ve had.
The other thing I would say: in our system, I have a skill set. My mother-in-law says I’m an “idiot savant.” I was not in the top 10% of my high school class, but I’m very good at compounding money. And I just get a real pleasure — both emotionally — just trying to make sure other individuals have the same shot I had. I was in a bad school district; my father moved me. I had an opportunity — if he hadn’t moved me, I don’t think I’d be sitting here today. So it’s not bad economic policy that drives me to give. I’m helping people who haven’t been as lucky as I was. I’m helping myself too — I love giving money away, it gives me pleasure. And to me, it’s a privilege. I think a lot of people would do it if they had the kind of resources I have. It gives me a thrill to be at Memorial Sloan Kettering and see them moving the needle on cancer. It really gives me a thrill to see that we’re providing kids in Harlem and others the same shot — or at least a better shot — at the American dream.
So, one of the things we emphasize and like to give to is economic mobility. There’s a lot of very cool stuff going on. I’d say my latest and most passionate experience is with Blue Meridian. During my Harlem Children’s Zone days — well, those days are continuing — but when we founded Harlem Children’s Zone, Jeff Canada and I, there was a woman at the Edna McConnell Clark Foundation named Nancy Roob, and they helped us set up our original business plan. She did the due diligence on us for 20 years. And believe me, when you’re on the other side of strong due diligence, you get to learn how talented someone is. So when Nancy told me that the Clark Foundation wanted to liquidate and she wanted to set up this thing — to bridge the gap between all the wealth that’s been created today and this whole incredible group of young social entrepreneurs out there who want to deal with the problem, but the money’s stuck on one side and the talent is on the other — her concept was to transfer the money to them.
You’ve got stuff going on like The Giving Pledge and all this stuff that shows an intent. Unfortunately, there’s not a lot of movement yet. But I’m pretty optimistic, given the intent and also given the talent that’s out there in the social-entrepreneur sector. What you talked about with talent being drawn into the financial sector — it’s amazing the talent that’s been drawn into the social-entrepreneur sector. I think it’s a sign of our times. So I’m hopeful, enthusiastic, excited that a platform like Blue Meridian — that brings these funders together with these practitioners — is going to work and deal with some of the problems.
Eric: What problems in particular?
Druckenmiller: Economic mobility, I think, is the biggest one. Blue Meridian is already funding place-based strategies like Harlem Children’s Zone, funding Nurse-Family Partnership — which is about early life, because obviously kids, if not properly nurtured in their first two or three years, don’t have the vocabulary and the chance. But, you know, just helping mothers — single mothers — give the same kind of attention to their baby that our children might. There are a number of organizations across the board. But the idea is: if you take great leaders and identify them — I was lucky enough to meet Jeff Canada — and you apply the same investment principles I’ve used in my lifetime of investing: find a winner, back them, scale them up, don’t sell them, ride the winner, keep investing with them as long as they’re innovating — that’s the concept here. So we’re making big, big bets, putting the dream out there of $100 to $200 million of funding for organizations that we think can be scaled up, that will solve the economic mobility problem — or not solve it, but put a big dent in it — and give others a chance at the American dream.
Eric: So perhaps a little timid with investing, but not so timid in your philanthropy.
Druckenmiller: Definitely not timid in the philanthropy, and hugely excited about what might lie ahead in this country for it. And you know, I don’t mean to be hoity-toity about this, but I know there’s been some commentary about billionaires and their philanthropy. I can just say: I think using the private sector to encourage innovation with these social entrepreneurs — and then, if the model works, plowing the money in there — that’s a lot more exciting to me than giving the money to Mitch McConnell or Nancy Pelosi. I’d much rather give it to Jeff Canada or some of these other organizations, these entrepreneurs.