Stanley Druckenmiller: the bull market is exhausting itself

published 27 May 2016

160525-stan-druckenmiller — Stanley Druckenmiller: bearish on US equities

Stanley Druckenmiller, George Soros' former investment partner, is extremely bearish on the American market and equities in general. "We are deep into the longest period ever of excessively easy monetary policies," he says, yet this "radical dovishness" has not only prevented firms and individuals from deleveraging, but has encouraged them to take on more debt, which has been frittered away on "financial engineering" rather than investment.

This isn't just the fault of America. China shares the blame rather than continue to reform its economy and accept a lower growth rate, the Chinese government has tried to maintain breakneck rates of expansion by launching successive waves of stimulus. This has seen China's national debt explode, even though its growth (and thus its ability to repay the debt) has dramatically slowed.

Until now, Druckenmiller has always believed that the "tidal wave of central bank money worldwide would propel financial assets higher". However, he now feels that "higher valuations, three more years of unproductive corporate behaviour, limits to further easing and excessive borrowing from the future suggest that the bull market is exhausting itself".

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Even the Federal Reserve's policies may be "increasing, not lowering, the odds of the economic tail risk they are trying to avoid". As a result, he is bullish on gold, especially as the opportunity cost of holding ithas dropped with near-zero, or even negative, interest rates.

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

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