Stanley Druckenmiller warns against the USA’s hard landing at the Sohn conference
Macroeconomic concerns are piling up, creating increased uncertainty for investors.
“The debt ceiling debate is really depressing,” Stanley Druckenmiller, chairman and CEO of the Duquesne Family Office, said at the 2023 Sohn Investment Conference held virtually Tuesday. “I hope we don’t have a technical standard,” he said, that would result in a “market event.”
Druckenmiller said the current macro environment, marked by continued high inflation in the US even after aggressive monetary tightening by the Federal Reserve, makes it harder for him to have confidence in his own forecasts. But after a “massive” asset bubble, he warned that a hard landing for the US economy could mean a drop of at least 20% in corporate profits, a rise in unemployment to more than 5% from 3.4% today, and a increase in bankruptcies.
In recent weeks, a few regional banks have failed in the wake of the Fed̵[ads1]7;s rapid rate hikes over the past year in the ongoing battle with high inflation.
“I’m not predicting anything worse than 2008,” Druckenmiller said, but he suggested it would be “naive” not to at least be open to the possibility of something that could affect the global financial crisis.
Read: What will happen to the dollar if the US debt ceiling is not raised?
While the US has the “privilege” of having the dollar as the world’s reserve currency, he said it also risks allowing the government to pursue “very short-sighted policies”. He warned that reckless fiscal and monetary policy could mean “digging a bigger and bigger hole”.
“When you’re the reserve currency, you can keep digging your own grave,” he said, since “we have no check on us.”
Druckenmiller expressed concern over the government’s rising debt and questioned whether policymakers would allow a “creative destruction” in a hard-landing scenario as opposed to responding with more monetary stimulus.
Read: How debt ceiling concerns could play out in a risky corporate bond market, according to CreditSights
A hard landing would provide investment opportunities.
Artificial intelligence could be one such area, and it could prove to have as big an impact on productivity as the personal computer was, Druckenmiller said, noting that Nvidia Corp.
is one way his firm is participating in exposure to AI.
In a separate session at the Sohn Investment Conference, Bridgewater Associates Co-Chief Investment Officer Karen Karniol-Tambour said it’s still unknown whether AI can be used for an investment advantage, but it’s something the world’s largest hedge fund firm is studying.
Speaking to the general state of capital markets, she said “the world is changing very quickly and capital markets tend to be slow to adapt.” In one of the toughest times to be an investor in years, she said it may be time to think about asset diversification differently.
In her view, Japan represents an “undervalued” investment opportunity in developed markets. She also noted emerging markets and gold
“I think it has a long way to go,” she said of the precious metal.
Meanwhile, the US stock market ended lower on Tuesday, with the Dow Jones Industrial Average
down 0.2%, the S&P 500
decreased 0.5% and the Nasdaq Composite
down 0.6%, according to FactSet data.
Read: Biden describes debt ceiling meeting as ‘productive’, but McCarthy says he ‘didn’t see any new movement