Stanley Druckenmiller Full Interview - Charlie Rose
Transcript
Charlie: Almost one in every four children in the United States of America lives in a state of poverty — that’s an outrage. One way to think about it: of the top 35 industrial countries in the world, we have the second highest poverty rate.
Stan Druckenmiller is here. For 30 years he maintained one of the best investment track records on Wall Street. He recently orchestrated a campaign at colleges across the country to educate and mobilize action on entitlement reform and other government spending. He says that without a major overhaul soon, today’s young people will be robbed of the future benefits and standard of living they deserve.
I am pleased to have Stan Druckenmiller at this table. Welcome.
Druckenmiller: Thanks, Charlie. Good to see you.
Charlie: It’s good to see you. Can I just start with understanding you? You know this remarkable record with Duquesne and with Quantum Fund and George Soros and the relationship — where are you in your life?
Druckenmiller: You mean, what am I doing?
Charlie: Yeah.
Druckenmiller: I’m still managing money very actively — for family and the family foundation. So I go to work about six and I come home at six, so I’m doing that 12 hours a day. I’m still in love with markets. The only thing that’s changed is I’m not competing anymore — I’m not managing other people’s money — but I love markets and I love the intellectual challenge as much as I ever have.
Charlie: Is that what you love about markets? The intellectual challenge?
Druckenmiller: Yes. Also, I like — no, not so much being rich as I like to win. I have a disease — it’s a competitive disease — that gives me a thrill to win.
Charlie: But does it give you a thrill also to win and to be better than someone else, which is winning?
Druckenmiller: Well, I don’t know whether you’re better than someone else, but it gives me a thrill to have better results than someone else, yes.
Charlie: And where did you get that — where does the competitive spirit come from? Do you know? You can’t remember when you didn’t have it.
Druckenmiller: I don’t know. I remember being a brat when I was little — we used to play board games at our house constantly and I really did not like to lose. Just something I was born with. It’s somewhat of a curse, but it also has its advantages in terms of pushing you to perform.
Charlie: Yeah — pushing you, and therefore, with success, widening your opportunities to do a range of things. But beyond that, what is it about markets that’s magical for people who love the idea of what they not only represent but the challenge they offer?
Druckenmiller: So I’d say there are two things. Number one, I love trying to put a puzzle together, visualize the future, and particularly if you have a different view than other people — and if you do that right, the security prices in the future will reflect that. There’s a great satisfaction to having solved that puzzle. And the nice thing is you get your grades in the paper every day — there’s no subjectivity in the money management business. It’s right there. And if you’re screwing up, those numbers tell you every day. I love the objectivity of that. I always have.
Charlie: George Soros and the relationship the two of you had — because you were there, you were the guy when the great decision based on the devaluation of the pound happened. You bet, right?
Druckenmiller: Yes.
Charlie: And you bet a lot. And you made a billion dollars plus on one day, something like that?
Druckenmiller: Yes, or something like that.
Charlie: So who has — abused a polite term — who has the bigger nerve? You or George?
Druckenmiller: Oh, I’d say George — ice water — George has more ice water than I do. I’d say if you looked at our records, they’re very comparable. When he ran Quantum and I ran Quantum, they’re almost within decimal points. George made more spectacular bets, and my record was a little more consistent — but the results were pretty much the same.
Charlie: But do you agree with him in terms of — if you see an opportunity, just go all in?
Druckenmiller: Oh yeah. If there’s one thing I learned from George, and what made me a better money manager because of George, it’s exactly that. It’s not whether you’re right or wrong — it’s how much money you make when you’re right and how much you lose when you’re wrong.
Charlie: Yeah. And how confident you are that you’re right.
Druckenmiller: Yes. But up until that point I had a very good record — it was only after I was with George that I learned how much you should really press a bet when your confidence level is extremely high. I did that before — I was there, don’t get me wrong — but it was amazing to watch that man when we had something we really believed in, to see the way he would size risk and reward.
Charlie: And you cherish the fact that the relationship is one in which — you know, we’re friends, we have different lives — but he once said you’re not only a great money manager but you’re also a partner.
Druckenmiller: No, I have very fond feelings. Those were the best 12 years of my life — my three children were born, I learned a lot, it was an exciting time. And we’re still in touch. We’re on different political sides.
Charlie: That’s exactly where I was going. There’s been a buildup to that.
Druckenmiller: It doesn’t matter in terms of our friendship at all.
Charlie: Totally different places, aren’t you?
Druckenmiller: Yes. But the respect is there. Maybe Washington could learn something — we couldn’t be more different politically, but the mutual respect is there.
Charlie: So define how you’re different politically.
Druckenmiller: I think George, in traditional terms, would be considered more on the left. And I would be considered more on the right — particularly on the non-social issues, on the economic issues. He’s much more pro-regulation; he thinks markets go wild. I love free markets. I’m anti-regulation.
Charlie: And are you beyond being on the right — more libertarian?
Druckenmiller: Yeah, I think that’s probably fair. I’m certainly not on the right on social issues, and I’m certainly anti-crony capitalism. So I have some strange views in terms of being on the right that normal corporations may not particularly like — a lot of views that normal corporations may not like.
Charlie: I think to understand what you’re arguing for is not necessarily predictable from where you come from politically.
Druckenmiller: Oh, no, that’s absolutely true. In fact, I think one of the problems of getting this message through — which is so obvious to me, as obvious as the pound trade was, and then some, in terms of predictability — is that it has been associated with austerity and the right wing. And I don’t look at it that way at all. In many ways the left wing should be more excited — or as excited — as the right wing. And that’s actually what we found out on the road with the students. The kids at Berkeley loved it. The kids at Brown loved it. So it’s the same conclusion, but it’s a different messaging.
Charlie: I wanted to understand where you come from politically before you explain what it is you’re on the road talking about — what the central idea is and why you’re so passionate about it. So: from the right, maybe more libertarian?
Druckenmiller: I’m an independent who would be considered center on social issues and probably somewhere very much opposed to the present administration.
Charlie: Well, I voted for him the first time —
Druckenmiller: First time, but I’ve been opposed to just about everything he’s done since.
Charlie: What was your problem with health care?
Druckenmiller: My problem with health care — we’re talking about Obamacare — I believed it was a once-in-a-generation opportunity to separate this thing from the corporation and make the consumer of health care actually have choice and skin in the game. One of the big problems with the health care system is we go to the doctor, we have no incentive to shop, no incentive to see what the costs are. As long as your corporation is paying the bills and you don’t see that bill, that’s the way it’s going to remain.
I guess my problem with Obamacare, the more I understand it now, is it’s all dishonest. By that I mean: we’re taking young, healthy people and making them buy plans with stuff in them they don’t need, to subsidize people with pre-conditions and older people. Unless you do that, the system will not work. And I’m okay if you want to tax Stan Druckenmiller and tell him, “We’re taxing you to support people with pre-existing conditions and sick people.” I’m not okay with messing up all these market incentives and making me carry maternity coverage and all kinds of stuff as some kind of hidden scheme to achieve that subsidization.
If we as a society want to implement universal health care, let’s at least be honest about it and put a tax on all of us and say we choose to do this. Let’s not muck up the whole system.
Charlie: Would you be willing to pay that kind of tax?
Druckenmiller: I’d feel a lot better paying for it as a tax than mucking up the whole incentives within the health care system. Would I be willing to pay for it? Yes, I think I would.
Charlie: So you’re going around to college campuses, and you have a central theory — which I referred to in the introduction — that it’s terribly unfair what we are doing to young people today, that we’re burdening them with circumstances that we didn’t have, so that they can take care of us.
Druckenmiller: Yes. That’s very simplified, so let me expand.
It’s not pay-as-you-go. It was set up a long time ago — current workers pay for current seniors. And because of the senior lobby versus young people — because young people don’t vote and they don’t give money to parties, they have other things on their mind and are not organized — the seniors in our society have been taking an increasing share, for the better part of 40 years, from money allotted to youth and investment.
This has been somewhat alarming, but now is extremely alarming, because the baby boom which took place from 1947 to 1967 — that was 65 years ago — means the number of seniors is about to explode. The share of the pie that has gone to the elderly is now about to be distributed to a lot more people. Specifically, Charlie, we are creating 8,000 new seniors on the entitlement payrolls every day. And we’re only producing 2,000 young adult workers to support them. That number goes to 11,000 by 2029. So you have a combination of too much pie going to one sector, and now that sector growing dramatically relative to the sector that’s going to support them — which should set up a big fiscal problem sometime in the next 20 to 40 years.
Charlie: Not in the next 10 or 15?
Druckenmiller: I don’t think in the next 10 or 15, but I don’t know. But let me tell you why I don’t care whether it’s 10 or 15 — because every day we wait is money that the next generation has to pay. Whether it’s 10, 15, 20, 30, or 40 years — every day you wait, these obligations and debts accumulate, which means the next generation will pay that bill as opposed to seniors today. There’s a terrible unfairness about what we’re looking at.
And as you probably know, one of the problems is we are allocating more and more resources toward transfer payments to seniors and away from things like Head Start, NIH grants, investments in education. So you’re also having the seed-corn-eating problem.
Charlie: I hear you, and I think other people recognize the problem we face. But you’re basically saying to young people: you’ve got to do something, you’ve got to get organized, you have to take responsibility — otherwise you’re going to face a crushing burden.
Druckenmiller: Yes. They’re going to have to pay more, and they won’t get out as much, because people who are older are getting out what they were promised.
One of the things I bristle at is that I’ve read that I’m anti-entitlement.
Charlie: Yeah. Well, I’m going to get at that.
Druckenmiller: I’m not anti-entitlement. I want youth today to enjoy the benefits of the social security net that retirees today enjoy. If we continue to share the pie the way we’re doing it, there’s going to be nothing left for the youth of today. So it’s not that I’m anti-entitlement — it’s that I’m for the sustainability of entitlement.
Those who stand up and say, “Let’s just let the baby boom generation get through the system and then we can figure all this out” — that is total nonsense. What happens is that’s the rat-through-the-python theory. Once the rat goes through the python, you’re fine. But by the time the 20 or 30 years are up when the baby boomers are gone, the debt is so high that the interest payments alone start to become bigger than the entitlements were during those 20 to 30 years.
Charlie: Are you at all encouraged over the fact that the debt is going down?
Druckenmiller: None whatsoever. That is temporary. That’s tiny potatoes — a short-term cyclical phenomenon that has nothing to do with entitlements. Nothing. We are right on the front end of a demographic surge that is going to cause spending to go crazy.
Let me just put it in perspective: the next 10 years — and this is with the administration’s optimistic budget — the growth in Social Security, Medicare, and Medicaid is going to be $780 billion. The growth in spending on children is going to be $20 billion. That’s what you’re looking at. I don’t know what kind of society you want, but this is just transfer payments to the elderly, who have already been increasing their share of the pie for the last 40 years. I think it’s unfair, most of all, and it will set up an unsustainable situation down the road.
Charlie: Here’s the alternative argument. Take Larry Summers — somebody whose intellect you have some respect for. He argues that what we need to do is create growth in the economy, and that growth will take care of all the problems that Stan is worried about.
Druckenmiller: Okay: A, it won’t take care of all the problems I’m talking about. B, I’m very sympathetic to what Larry is saying — who I consider a friend.
Let me just put it this way: 40 years ago — and this is an argument Larry would be very sympathetic to — we spent 32% of federal outlays on investment: infrastructure, education, R&D, science, exploration. And we spent about 30% on transfer payments to the elderly. We now spend 68% on transfer payments, but investments are down to 15%.
To Larry’s point: what did we get out of the investment? We got the internet. We got GPS. We got the human genome.
Charlie: So that’s where you have agreement — that those investments are worthwhile and important and crucial to our future.
Druckenmiller: Yes. But we are cutting the investments so we can continue to let transfer payments to the elderly grow at a very rapid rate.
Charlie: You weren’t coming here as a representative of the view often expressed by certain members of Congress. You thought it was silly to attach the defunding of Obamacare to the debt ceiling. On the other hand, you’d be prepared to attach something else to raising the debt ceiling in order to address the problem you’re talking about. Am I right?
Druckenmiller: I was 100% against tying Obamacare defunding to the government shutdown. That argument was decided, and as much as I didn’t like the conclusion, I have never been for defunding Obamacare once it was voted on. And certainly linking it to the government shutdown was insane.
Charlie: Are there circumstances in which you would think a government shutdown is satisfactory — for example, “We’ll shut down the government rather than raise the debt ceiling”?
Druckenmiller: If I thought there was a big enough carrot at the end — and to me that would be serious entitlement reform — I would be willing to flirt with a government shutdown. There was no big carrot at the end of the road this time. Both parties agreed the one thing we weren’t going to do was cut growth in payments to seniors. We weren’t even talking about entitlements.
Charlie: The president said they’re certainly prepared to look at some changes in entitlement reform in the current budget process.
Druckenmiller: The president says a lot of things. The first thing that set me on my media tour and the college tour was the president — when the budget battle started way back in the beginning of last year — I saw it on television, it was like yesterday — stating: “The one thing we are not going to do is balance this on the back of seniors.” That was his initial position. And I haven’t heard a lot different.
Charlie: How would you touch the other stuff?
Druckenmiller: I’m going to give you an answer, but the first thing I want to say is: I’ve been trying to identify the problem. I don’t have a monopoly on the truth. I have my own opinions and some suggestions, but I really think the answer needs to be fought out in the political arena.
If you’re asking me what my suggestions would be — the first thing is the really low-hanging fruit. You can means-test Medicare to a greater extent. You can certainly means-test Social Security. We haven’t even done that. So people like you who don’t need Medicare would not get Medicare.
Charlie: Correct.
Druckenmiller: I would look at it philosophically — this was an insurance safety net. We paid into it 40 or 50 years. We bought fire insurance. The fire didn’t happen. Let’s give the insurance to the people that need it. But that’s not a whole lot of money.
I also differ from the Republicans in that I would not exempt people over 55. When I look at the share of the pie that current seniors have gotten over the last 40 years — the chain-weighted CPI — that wouldn’t even go far enough. I would freeze Social Security. Now, 30 or 40% of people really need Social Security, and this is where means testing comes in — they should be provided for. I do not want to see seniors in poverty. I also don’t want to see seniors without the medical care and the things they thought they had a social contract to receive.
Charlie: Yes, and they’re receiving it.
Druckenmiller: Okay. Then you get into the elephant in the room, which is the health care system — and here it gets very complicated. The first thing you’ve got to do is put incentives at the consumption level, and it’s already happening to some extent through more co-payments — that should start to push down costs. The second thing: I think the extent of malpractice in this country is causing a lot of tests to be done that don’t need to be done — CYA policies by hospitals and so forth.
But then you get into some very controversial issues, like end of life. If you have a terminally ill patient who has a zero percent chance of living more than two months, and it’s going to cost a million dollars to keep them alive for those two months — how much should that family pay versus society?
I’ll give you a horrible story: when I talked at the University of North Carolina, a crying mother came up to me because her 93-year-old mother had just been put into a hospice, and she was getting thousands of dollars in care — which she didn’t want for the mother — but her seven-year-old daughter couldn’t get the money for an operation she needed. The woman was literally crying. The juxtaposition of the 93-year-old mother — probably two or three months to live — getting thousands and thousands of dollars in care, but no funding there for the seven-year-old.
This is why I say Stan Druckenmiller can’t make this decision, but it’s a conversation we have to have. And we’re not having it.
Charlie: In order to understand where you are — you basically want to see the capital gains tax rise to the rate of ordinary income.
Druckenmiller: I think there’s a different way to grow the economy.
Charlie: And I also want to know what your conservative friends think of this.
Druckenmiller: Okay. Let’s go back to Larry Summers. I think taking the capital gains rate and the dividend rates to ordinary income, while you simultaneously lower corporate tax rates to zero, would make the economy grow dramatically. Revenues to the government would actually increase — to put you where Larry is. But he likes to do it through investment spending. I like to do it through tax reform.
Charlie: So you take capital gains to the level of ordinary income —
Druckenmiller: And you reduce the corporate income tax to zero. You would pay tax on corporate profits because you’d be a shareholder. Corporations have been presented as like living things to people — they’re not. Corporations are owned by shareholders. If you tax the shareholder, you’re taxing the ultimate benefit at ordinary income rates. They’re clipping coupons — they’re not hiring people, not engaging in capital spending. The corporations are doing that, and you take their rate to zero. And by the way, all this money they talk about overseas — if the corporations take that money and buy back stock and issue dividends, that money comes back at a 40% rate. They’re not even bringing it back at the 35% rate now.
Charlie: Do you think this has a chance in hell of being politically viable? And is the reason you’re sitting at this table — going to all these campuses — that you want to create some kind of political action that might result in it having a chance?
Druckenmiller: I want to shine a light on this issue, and I am desperately hoping the young people will start a movement. Do I want to start the movement? I don’t think I’m capable. Do I think I can articulate the facts? Yes. And have I seen them respond — that somebody out there could start a movement? Yes. In my opinion, they were instrumental in getting gay marriage passed. They’re moving the needle on the environment. This thing is very similar.
Charlie: On both of those issues, you were on their side.
Druckenmiller: Still am. I’m trying to lay out a set of facts and hoping that when they look at those facts, they will start to put political pressure and consider this issue as important as they do the environment and gay rights.
Charlie: And do you think you’ll find more receptivity in the Republican Party or the Democratic Party?
Druckenmiller: In the youth? I have — I know what I’ll see, which is enthusiasm on both sides. When Jeff Canada and I have gone out, not only have we spoken for an hour, they ask questions for a half hour, and there are 40 hands left when we leave. It doesn’t matter whether we’re at Berkeley, Brown, USC, or North Carolina — they’re all there.
Charlie: Now just explain who Jeff Canada is.
Druckenmiller: He runs the Harlem Children’s Zone. I have been chairman of the Harlem Children’s Zone since its founding. There are a hundred square blocks up in Harlem — they take children basically from birth all the way through college through a bunch of what I would call social antibiotics: education, baby college, pre-K, trying to get them through college — so we can break the cycle of intergenerational poverty. And as you know, there’s a bunch of pilot programs, some inspired by the president, to try and copy that model around the country.
Charlie: And you have been his big supporter since the beginning.
Druckenmiller: I was on his pre-board with his pre-organization, the Rheedlen Centers, and when he founded the Harlem Children’s Zone, I became the chairman and have been at his side throughout.
Charlie: When you go to Washington and carry your message, what kind of response do you get there?
Druckenmiller: I went to Washington in 1994 and argued to raise the retirement age — because that’s when I knew the demographics. I had very little success.
I haven’t even gone to Washington this time, because it’s my view that until the young people show them that they’re concerned on this issue, the people in Washington will not give a damn about this.
Charlie: Do you think the government is too dysfunctional to overcome this? Or are people saying, “Look, they can be dysfunctional in Washington if they want to — we’re going to affect elections and affect the public mind”?
Druckenmiller: I know we will overcome it, but I don’t know the timeline. We have these phases in America where crazy things happen economically and politically, and what’s going on in Washington now will not be sustained. I don’t know when it ends — we all pray it ends sometime soon, maybe in the next five or ten years. I have great hope that maybe the right president could bring them together. I don’t know what’s going to end it, but it will end, and the United States will be fine.
Charlie: We started this talking about George Soros — he’s on the left and you’re somewhere on the right, but on social issues in the center. What does George say about your ideas?
Druckenmiller: Haven’t talked to him about it.
Charlie: Why not?
Druckenmiller: I haven’t gotten around to it.
Charlie: Come on — you’re smart. Why haven’t you talked to him about it?
Druckenmiller: I probably will in the next month or two. This is pretty new for me, Charlie — I didn’t even know I was going to do this. I don’t know how he’ll think about it. I have been very pleasantly surprised by the reception I’ve gotten from the intellectual left on this issue, when I’ve gotten to sit down with them and explain my case. The stuff that’s been written objecting to what I’m saying — I’m not saying what I’m being accused of saying. So I don’t want to speak for George, but there will be a time in the next few months where I will certainly sit down with him and see what he thinks about it.
Charlie: Thank you for coming.
Druckenmiller: Thank you.
Charlie: Back in a moment. Stay with us.