We previously reported on Druckenmiller's sudden and dramatic U-turn in outlook following the Donald Trump presidential victory, when on November 10, the legendary Duquesne manager said that he is now "as hopeful as I've been in a long time", and to validate his belief, he said that "I sold all my gold on the night of the election" because “all the reasons I owned it for the last couple of years seem to be ending", first and foremost his expectations that inflation is now set to spike, forcing money out of safe assets - like gold and Treasuries - and into the US Dollar.
Druckenmiller became an overnight bull on hopes the Trump administration would unleash a fiscal stimulus-based period of growth for the economy, with a a “large bet on economic growth." He also told CNBC that "I’m short bonds, Bunds, Italian bonds, U.S. bonds” a reflection of his expectation of higher deficits and stronger growth.
Fast forward to today, when Stan Druckenmiller spoke at the Robin Hood Investors Conference in Brooklyn, repeated he is bullish on the American economy following the U.S. election, and anticipates a much stronger dollar and higher bond yields. Druckenmiller joined Jeff Gundlach in predicting that US 10Y yields may rise to 6% over the next year or two, while the euro could weaken far below parity and drop to 82 cents against the dollar. He’s also short the yen, European, Japanese bonds and also gilts.
Speaking at the conference, Druckenmiller said that he had been short the market heading into the election, expecting a Clinton victory and was prepared to short more had the market rallied "based on the quagmire of no options left after the eight year-old experiment of low rates." However, he immediately went long on the Trump win on expectations of lower taxes and deregulation. Druck also said that Trump - of whom he is not a fan but is a fan of
Paul Ryan with whom Mike Pence is close - is expected to cut individual
and corporate taxes.
In short: the entire thesis changed overnight upon Trump's victory, which also led to Drucknemiller's liquidation of his gold holdings.
Druckenmiller quoted Larry Lindsey, who expects US GDP to rise as much as 6% by 2019, and expects the yield on the 10Y to correlate with that. He noted that the fair value of the 10Y Treasury is around 3%.
At this point he echoed the warning made just last night by Goldman Sachs, according to which a 10Y above 2.75% would put pressure on stocks, and said that if the 10Y rose to 3%, the S&P could see a 10% correction, but warned that the market could correct well prior to that in anticipation.
He then went on to bash Japan, whose debt-to-GDP he defined as "crazy", slammed the BOJ's monetary policy (accusing it of tightening on deflation and easing on strength). He also was far less sanguine about the fate of the Euro zone, and predicted that within 10 years the EU would break up.
Druckenmiller also noted that he is optimistic that the "rigged volatility" period of the last several years has finally ended, a transition which would be beneficial for hedge funds and concluded by casually telling the audiences that his returns in 2016 were in the low teens.