One of America's most successful fund managers, Stan Druckenmiller, has broken a vow of media silence to warn of an impending "financial storm". With his track record, he's a man to be taken seriously.
Druckenmiller launched his own hedge fund when he was just 28. It later grew tobe worth $12bn. While running the fund, the industrious Druckenmiller also moonlighted for other firms, and even helped fellow fund manager George Soros execute his legendary $1bn-profit sterling trade against the Bank of England in 1992.
But in 1996, the high-flying Druckenmiller came back to earth with a bump when he became entangled in a fierce political debate on America's then fiscal problems. "I kind of made a mess of the whole experience", admits Druckenmiller. As a result, he vowed to "stay out of the public eye and stick to managing money for my clients".
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Now 59, he wound up his hedge fund, Duquesne Capital Management, in 2010, despite the fact that it generated positive returns for investors in every one of its 30 years. Citing concerns that managing such huge sums of money would prevent him from maintaining his record and his health, he now devotes his time to philanthropy and making scary predictions.
This month, he spoke to US finance channel Bloomberg and warned "America is facing a storm that could be much worse than the 2008 2010 crisis". It's not exactly a new theme amongst pundits, but the difference is that Druckenmiller has form when it comes to predicting crises - he made massive returns for his clients by spotting the US subprime problem early and betting against property.
That was no flash-in-the-pan correct guess either. His long-term record is impressive and he boasts an average annual return of 30% since 1986.
So what's Druckenmiller so worried about now? Old people. "Entitlement spending increased from 28% of the government budget in 1960 to 50% in 1994. Now they account for 67% of government outlays. But the worrying thing is that they haven't gone up because of demographics, they've gone up because the seniors have got a powerful lobby and have succeeded in getting more transfer payments from the youth."
Moreover, Druckenmiller says the situation is about to get a lot worse. "Right now the working population is paying for the entitlements of the seniors. At the moment, we have 4.5 workers for every retiree, by 2050 that will be 2.4. Or to put it another way, by 2030, the average population of theUS will be older than theaverage Floridian [Florida being a popular destination for pensioners]."
Unless entitlements are reformed, this rapid ageing will destroy the US government's already strained finances, says Druckenmiller.
"I'm not going to tell you when it will happen. I was early calling the last crisis and my 2005 trades cost me a lot of money. I correctly saw the storm but my timing was off. With this crisis I don't know when it will happen but, unless we reform, it will happen. It could be one month or ten years but it will happen because fundamentals are fundamentals."
James graduated from Keele University with a BA (Hons) in English literature and history, and has a NCTJ certificate in journalism.
After working as a freelance journalist in various Latin American countries, and a spell at ITV, James wrote for Television Business International and covered the European equity markets for the Forbes.com London bureau.
James has travelled extensively in emerging markets, reporting for international energy magazines such as Oil and Gas Investor, and institutional publications such as the Commonwealth Business Environment Report.
He is currently the managing editor of LatAm INVESTOR, the UK's only Latin American finance magazine.
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