Source: Wall Street News
Billionaire fund manager Stanley Druckenmiller, Soros’ former military adviser, warned Wall Street that the sharp decline in stocks after the Federal Reserve raised interest rates is not over, and he is looking for opportunities to short stocks and the dollar.
On Thursday, Druckenmiller said at the 2022 Sohn Investment Conference:
My best guess is that we’re six months into a bear market.
For those tactical trades, the first leg may be over. But I think it’s very, very likely that the bear market will continue.
So far, the Nasdaq Composite is down more than 20% from its previous peak and has entered bear market correction territory. The S&P 500 has rebounded 3% on the brink of a bear market, but it’s also in jeopardy.
The catalyst for this stock market crisis is that the Federal Reserve has become aggressive in tackling the highest inflation in decades. Druckenmiller believes this could lead to a recession sometime in 2023.
About a year ago, he thought the central bank’s policy was completely inappropriate and “we are in the midst of a frenzy in all the markets”.
Druckenmiller, 68, who managed money for billionaire George Soros for more than 10 years, said: “The cost of that period was unbelievably high because a lot of people bought a lot of assets during that period, and once it got off the risk curve, It will be a huge loss.”
Greenlight Capital’s David Einhorn also told the investment conference that inflation is a big problem and is likely to continue, in part because of underinvestment in industries such as cement, housing, oil extraction and paper.
Druckenmiller said he has been shorting fixed-income assets (government and corporate bonds, etc.) and the stock market for the past six to eight months, avoiding too much money market exposure and holding key commodities like oil, gold and copper. In the first quarter, his Duquesne Family Office sold shares in Google parent Alphabet, Airbnb and Carvana while adding to Chevron, according to regulatory filings last month.
With U.S. Treasury yields well below inflation, Druckenmiller said he doesn’t believe U.S. Treasuries can hold up during downturns as they have in the past. So he’s basically suspending Treasuries trading for now.
While I’m nervous about holding bonds, shorting fixed income is far less comfortable than it was 3-6 months ago.
At the same time, I’ve been through enough bear markets that if you’re aggressively shorting in a bear market, you might get “ripped off your head” on a rebound.
Still, Druckenmiller expects to short the stock again if the market presents the right opportunity. He also wants to short the dollar sometime in the next six months.
“If you’re predicting a soft landing, that goes against decades of history,” he said.
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