Druckenmiller Dropped The Biggest 'F' Bomb

By Michael Every of Rabobank

F is for Fed; Biden; Trump; and the 1980s

In a sea of lurid, stupid headlines today, it was billionaire investor Stanley Druckenmiller who arguably dropped the biggest F bombs via a TV interview.

First: “Bidenomics, If I was a professor, I’d give him an ‘F’. Basically, they misdiagnosed Covid and thought [the economy] was going into a depression... Treasury is still acting like we’re in a depression. They’ve spent and spent and spent, and my new fear now is that spending and the resulting interest rates on the debt that’s been created are going to crowd out some of the innovation that otherwise would have taken place.... Everybody seems to get it but Yellen, who just keeps spending and spending. I think it’s dumb politically because it’s causing inflation and it doesn’t take a genius to figure out that the average American is getting hurt by the inflation.”

As an aside, one of the reasons the White House is able to get away with this fiscal splurge is not just that ‘the US is the US’, which is true, but rather that 24/7 markets don’t have an easy spoon-fed monthly number for the US fiscal deficit as a percentage of GDP on a Bloomberg screen like CPI or GDP. What is the US fiscal deficit now and compared to cycles where unemployment was below 4%? If you know off the top of your head, I’m impressed: and you’re depressed (ZH: here is the answer).

Looking ahead to the post-2024 landscape, Druckenmiller stated:

“With Biden, I’m more worried about stagflation, with all the government spending, with all the tricks that Yellen has been using to manipulate yield curve, with the way the Fed seems to have reignited financial conditions. I think the inflationary outcome could be there. But I also fear regulation and everything else preventing productivity.”

However, he didn’t have much nice to say about Trump either and noted that inflation was likely to be even higher under his presidency, particularly if he interferes with the Fed’s independence and raises tariffs, as pledged. (Perhaps Stanley reads the work of our own Philip Marey, who has been arguing the same? It’s a small world, after all.) So that’s a pre-emptive F for Trump as well.

He therefore bewailed, “I’m basically a guy without a candidate. I’m an old-style Reagan, free markets, pro-immigration, and anti-tariff Republican.” Which would explain why he’s so unhappy. Because as I had argued before it started happening, that “The 1980s called, they want their economic policy back” recipe is being repeatedly given an F by both realpolitik and voters. That fact was just underlined by the latest US restrictions on chip sales to Huawei, TikTok’s decision to fight divest-or-close legislation in court, and any dozen other headlines from around the world.  

Druckenmiller was equally acerbic about the Fed’s December pivot, where markets were suddenly led to believe that rates were going to fall rapidly again, and we were heading back to the New Normal, as if the world had not changed: as I have put it before, the Pavlov’s dogs on Wall Street started to surf a wave of their own saliva. He argued, “It seemed to me the Fed was in a perfect position. Inflation was coming down, financial conditions were tightening. To some extent, I feel like they fumbled on the five-yard line.” And this is coming from someone who is a self-proclaimed “major beneficiary” of this alleged policy error.

So, what we have now is stagflationary.

What we may have next is inflationary.

And the time-machine policy some want to see is delusionary.