Friday, July 18, 2014

Stanley Drukenmiller: Fed Making a Bad Bet

From Delivering Alpha, July 16, 2014, Pierre Hotel, New York

Joe Kernen of CNBC Squawk Box co-host interviews Stanley Druckenmiller, founder of Duquesne Capital Management and chief executive officer and chairman, Duquesne Family Office LLC

Rough transcript from CNBC:

The following transcript has not been checked for accuracy.

Joe Kernen: So when we have talked in the past, you were even more, I guess, strident about your biggest bets, biggest money and we know how well you've done. we heard Julian Robertson, we know compounded return for years ars and years. betting against central banks. If you can find a mistake, that's what you key on. Sounds like you found a mistake and given the depth of the recession in 2008, and now the type of measures the Fed has used, these were shock and awe measures compared to what was done -- 2002 and 2003, in the bubble, and it scares me. I'm not sure whether I'd hold anything at this point.

Stan Druckenmiller: It's a great question. First of all, at this point in time, I don't see this as systemic. what we believed in 2005 and 2006 was that you had double leverage going on. People borrowed to buy their home, and then they were borrowing against their home, and the shadow banking system had accumulated those debts. So while the Fed thought the crisis was containable, we saw no such thing, because when the bad stuff gets into the banking system itself, it has huge wider implication for the broader economy. The current situation is a little -- is a little trickier, Joe. first of all, like '04, I don't have great certainty how this mistake will end. In fact, I'm not even sure it's going to end badly.

Joe Kernen: And it wouldn't be housing this time. I mean, we're waiting for housing.

Stan Druckenmiller: No. What I am sure is they're making a bad bet. A bad risk/reward. You could go to the lottery and win the lottery, but it doesn't mean it was good bet. So when I look at this monetary policy and i look at all the money my firm has made in the past, due to improper monetary policies, yes, it looks extreme, but since it hasn't infiltrated the banking system, I don't think at this point we're looking at an '08 or an '09 in our future any time. in terms of our future, you said 2000, you gave a speech in 2004. You didn't make the bet for another year, in -- it was 2005 yes. and made the bet when? 2006? I -- I made a lot of are money in '05, because i wanted to ride the overly aggressive policy. '06 i stunk. made some money, but I had left the party, and -- you knew there was a housing bubble, about three, four years early before '08.


This transcript is generated by automated closed captioning, has been edited for capitalization and to identify who is speaking,  and may not be entirely accurate.