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Druckenmiller and Trump were right


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:D

 

Funny that both Jim Cramer and Stanley Druckenmiller jumped in at the peak of the tech bubble in 99-2000 (Stan likes to exclude his results at Quantum when he quotes how he earned "30% over 30 years"). Guess they believe in those hidden signals the market whispers to them a little too much. I keep in my records a speech of Cramer's in 2000 to remind myself of who he is (must explain why his day job is now working for CNBC and not managing money):

 

https://equitymates.com/lets-review-jim-cramers-2000-stock-picks/

 

https://www.fool.com/investing/general/2008/08/27/jim-cramers-regrettable-investment-advice.aspx

 

"[Y]ou have to throw out all of the matrices and formulas and texts that existed before the Web. You have to throw them away because they can't make money for you anymore, and that is all that matters. We don't use price-to-earnings multiples anymore at [his hedge fund]. If we talk about price-to-book, we have already gone astray. If we use any of what Graham and Dodd teach us, we wouldn't have a dime under management."

 

"You should be buying things and accept that they are overvalued, but accept that they're going to keep going higher. I know that sounds irresponsible, but that's how you make the money. Right now, up is down, left is right, peace is war."

 

I wonder how Berkshire Hathaway fared with its investments through the tech bubble and its bursting...Is that old crank Buffett still managing money or did he get a job at CNBC too?

 

Also, note that Druckenmiller has been pushing cloud companies in his interview as an example and he believes they are a better value than banks, because they can grow in anlow growth environment and banks only can make more money at higher interest rates (which IMO isn’t true either).  last I checke, the cloud companies arnt soing thwt grsat either, but it’s possible that he changed his mind. anyways, Druckenmillet is a macro trader. I enjoyed listening to his interview and I think he has valid point regarding the  forward guidance. Greenspan perfected the art of saying nothing,which may be preferable. They should just state what they do and nothing else. No guidance and just look at the data every time and hopefully come to the right conclusions.

 

Powell seems a bit like a Mickey Mouse Volker, except that  Volker brought interest rates to 20% and Powell to 2.5% and yet here we are....

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Jim Cramer touted for wisdom on here? Please.

 

What are we, a banana republic? The central bank head of India recently resigned because the Prime Minister wanted easing next year (an election year for him). Do we want to go down this path???

 

Whether a sitting President can fire anyone at the Fed is questionable (https://www.google.com/amp/s/www.forbes.com/sites/patrickwwatson/2018/09/06/how-trump-could-fire-powell-and-rebuild-the-fed/amp/).

 

Why the change of heart in here? Anyone recall David Einhorn and his talk of “jelly doughnuts” by the fed many years ago? Suddenly now we want easing?

 

But hey, I guess your portfolio is down a few points now and you can’t take it, so we should destroy the precedent of an Independent Fed that has made this country what it is...

 

Guess we all (Trump included) just want it to be 2017 again with unnatural low volatility across the board and surging asset prices...

 

If volatility like this scares you (after many years of rising asset prices) and you resort to lashing out at the Fed, you have no business actively investing, IMO.

 

+1

 

Nicely said.

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Trump is a highly leveraged real-estate guy. Surprising to anyone he'd want forever zero interest rates?

 

Druck said he's more about removing forward guidance on the fed, and he's be for raising interest rates in a couple months and has been for normalizing them in the past, so it's not like he's taking the same position as Trump.

 

Exactly.  He's just saying to the Fed: don't break the economy like you did before. 

 

Personally, I went into this with plenty of cash, been buying, and will continue to buy, luckily I don't manage OPM (poor hedge fund managers, total bloodbath ...).

 

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There has been asset price inflation like crazy here in Canada.  Housing prices doubling or tripling against near flat incomes?  I think that is all interest rates.  The other way to look at it, if the fed is just mirroring what the market would do, then why do we need the fed?

 

The thing that really concerns me is the crazy stuff you are seeing elsewhere.  Negative interest rates?  Bank of Canada buying home loans?  It seems like as the facade starts to unravel they are reaching deeper and deeper when really maybe it was all caused by them artificially messing with the system.

You don't necessarily need low interest rates to have yourself a housing bubble. In Canada we had a nice one in the late 80s and back then interest rates were above 10% and going up.

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Trump is a highly leveraged real-estate guy. Surprising to anyone he'd want forever zero interest rates?

 

Druck said he's more about removing forward guidance on the fed, and he's be for raising interest rates in a couple months and has been for normalizing them in the past, so it's not like he's taking the same position as Trump.

 

Exactly.  He's just saying to the Fed: don't break the economy like you did before. 

 

Personally, I went into this with plenty of cash, been buying, and will continue to buy, luckily I don't manage OPM (poor hedge fund managers, total bloodbath ...).

Right. He's saying don't slow down the economy while I'm here. Let it break down bad for the next guy.

 

I manage OPM. My clients are cool with everything that's going on. In fact I'm meeting one of my larger ones tomorrow. We're cooking dinner together. No anxiety about the meeting what so ever.

 

I can't speak for how the hedgies are doing. They'll pretty full of crap. Maybe they're hiding under their desks pretending that the phone doesn't ring.

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Trump is a highly leveraged real-estate guy. Surprising to anyone he'd want forever zero interest rates?

 

Druck said he's more about removing forward guidance on the fed, and he's be for raising interest rates in a couple months and has been for normalizing them in the past, so it's not like he's taking the same position as Trump.

 

Exactly.  He's just saying to the Fed: don't break the economy like you did before. 

 

Personally, I went into this with plenty of cash, been buying, and will continue to buy, luckily I don't manage OPM (poor hedge fund managers, total bloodbath ...).

Right. He's saying don't slow down the economy while I'm here. Let it break down bad for the next guy.

 

I manage OPM. My clients are cool with everything that's going on. In fact I'm meeting one of my larger ones tomorrow. We're cooking dinner together. No anxiety about the meeting what so ever.

 

I can't speak for how the hedgies are doing. They'll pretty full of crap. Maybe they're hiding under their desks pretending that the phone doesn't ring.

 

You must have done a great job choosing your clients, good for you.

 

Regarding dinner, you can never know, let him be the first one to take a bite, then wait 30 minutes to see what happens. Of course, if you watched Princess Bride... sometimes this does not work out so well.

 

Early Merry Christmas and Happy Government Shutdown!

 

 

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Trump is a highly leveraged real-estate guy. Surprising to anyone he'd want forever zero interest rates?

 

Druck said he's more about removing forward guidance on the fed, and he's be for raising interest rates in a couple months and has been for normalizing them in the past, so it's not like he's taking the same position as Trump.

 

Exactly.  He's just saying to the Fed: don't break the economy like you did before. 

 

Personally, I went into this with plenty of cash, been buying, and will continue to buy, luckily I don't manage OPM (poor hedge fund managers, total bloodbath ...).

Right. He's saying don't slow down the economy while I'm here. Let it break down bad for the next guy.

 

I manage OPM. My clients are cool with everything that's going on. In fact I'm meeting one of my larger ones tomorrow. We're cooking dinner together. No anxiety about the meeting what so ever.

 

I can't speak for how the hedgies are doing. They'll pretty full of crap. Maybe they're hiding under their desks pretending that the phone doesn't ring.

 

You must have done a great job choosing your clients, good for you.

 

Regarding dinner, you can never know, let him be the first one to take a bite, then wait 30 minutes to see what happens. Of course, if you watched Princess Bride... sometimes this does not work out so well.

 

Early Merry Christmas and Happy Government Shutdown!

I did. They're a great bunch.

 

No worries about the dinner. I'm doing most of the cooking.

 

Merry Christmas Meiroy!

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No worries about the dinner. I'm doing most of the cooking.

 

Then perhaps we should tell your client to let you take the first bite, then wait 30 minutes to see what happens.

 

There's also something about switching plates or pretending to switch plates.

 

It gets complicated.

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Really good conversation here. I enjoyed reading your posts. One thing I have not seen mentioned is the hidden third mandate (kinda) for Fed. They always talk about the financial stability alongside unemployment and inflation objectives. I think it totally makes sense to normalize the cost of money etc. especially if you are not sure where the bodies are buried. However I have to agree with Druckenmiller about timing. This market is really weird with all the algos and quants etc. We can easily find ourselves in a self fullfilling prophecy if the market keeps on tanking fast and this spreads into real economy and/or other weak countries etc. I think there is gotta be some concern here for overall confidence and sentiment.

 

I like Powell but come on man he seems so tone deaf. They don't even know the exact impact of all these interest increases on real economy because of the lagged impact (18 months some say). No inflation. no real urgency and you decide to increase amid this lack of confidence in markets. why? I don't get it. why not waiting for Jan or March and make everybody happy including Trump for a while? I fully support normalizing rates but not like this. At the end of the day, no one knows about future so they have to be more careful/gradual...

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Really good conversation here. I enjoyed reading your posts. One thing I have not seen mentioned is the hidden third mandate (kinda) for Fed. They always talk about the financial stability alongside unemployment and inflation objectives. I think it totally makes sense to normalize the cost of money etc. especially if you are not sure where the bodies are buried. However I have to agree with Druckenmiller about timing. This market is really weird with all the algos and quants etc. We can easily find ourselves in a self fullfilling prophecy if the market keeps on tanking fast and this spreads into real economy and/or other weak countries etc. I think there is gotta be some concern here for overall confidence and sentiment.

 

I like Powell but come on man he seems so tone deaf. They don't even know the exact impact of all these interest increases on real economy because of the lagged impact (18 months some say). No inflation. no real urgency and you decide to increase amid this lack of confidence in markets. why? I don't get it. why not waiting for Jan or March and make everybody happy including Trump for a while? I fully support normalizing rates but not like this. At the end of the day, no one knows about future so they have to be more careful/gradual...

Look.. zero hedge is in the house!

 

No, there isn't a third mandate for the Fed. Algos and quants don't matter. You don't get a helping hand. What is with all this bullshit? You get guys who spend all their days pontificating about the free market but once they start booking some losses they start crying like little girls and begging for a quasi-governmental agency for help. Grow a set. Ok, rant over. Now over to serious analysis.

 

I'm not picking on you but I'll use your post as a spring board. By reading these boards I think there is some serious misunderstanding about what is meant by inflation when the Fed and pundits are using it. They don't mean actual inflation, they mean inflationary pressures. The fed's job is to look and combat inflationary pressure in order to keep inflation at 2%. It is not to fight inflation - i.e. if inflation gets up to 3%, then try to bring it back down to 2%. So you don't have to actually see inflation tick up for the fed to act.

 

What you actually saw from the fed this week is really, really standard central bank stuff. If you have a strong economy around full employment that's expanding at a faster pace than potential you tighten.

 

Btw, I am in the camp that the fed shouldn't tighten. The reason for that, which is the right argument for tightening, is the headline numbers are painting a wrong narrative. If the economy is doing so great then the labour market is banjo tight. At this level we should see wage inflation, but we don't see that. So maybe the economy is not doing so great. One of the worst mistakes in the history of the fed was the recession of 1937. Maybe we should avoid that this time around.

 

Of course this is also political bullshit. They want the cake and eat it too. A booming economy and low rates. It doesn't work that way. If you have a booming economy rates will go up. If you want lower rates, it's because your economy ain't that good. They also fired Janet Yellen who was a looser money type with Jay Powell who was a tighter money type which conservatives liked. So why are they bitching now? They got exactly what they asked for!

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Can someone help me understand why I keep hearing about how this economy is "booming"?  The Fed has it at around 3% this year and that's in a year with the huge one-off filip from the tax cut.  Then the Fed projects it slowing to 2.2% next year. 

 

Is 3% after some horrible years "booming"?  And how tight is the labor market really if the participation rate is at an all time low and there isn't enough tightness to get wages to go up?

 

If there are not sufficient inflation pressures to get inflation to target, and many of the inputs are anyway falling dramatically, and you ALREADY have the GDP growth rate projected to fall by nearly a third from over 3% to around 2%, exactly what data is it that the fed is using to justify their 4th raise this year? 

 

At the moment it is difficult for me to see how this Fed is anything but either (i) reckless/doctrinaire or (ii) politically motivated to create a recession in time for 2020.  And my best guess at the moment is that it is a combination of both depending on each of the governors.  For example how does Lael Brainard go from the cautious positions she held under Yellen to now voting to raise so many times in row without a single pause to see what effect the raises will have?  For historical context please see https://www.ft.com/content/769267b4-8cb1-11e6-8aa5-f79f5696c731 and https://www.federalreserve.gov/newsevents/speech/brainard20151012a.htm

 

It is not often I find myself agreeing with Trump....but this raise was a weird one for me to understand because i don't know of any objective data that would argue for it let alone a preponderance of data. The Fed has already tripled the cost of short term funds over the last year and a half, the fed says economic growth is slowing down, inflation is below target, global economies are weak and weakening, commodity inputs have collapsed, the bond market is pricing in a recession and rate cuts in the not too distant future...Is there even a single piece of data that actually supports the Fed here?

 

 

 

 

 

 

 

 

 

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This actually - to me personally, at least - supports in a great way, what rb posted above:

 

CNBC [December 21st 2018] : NY Fed President John Williams: The central bank is listening to the market, but believes the US economy is strong.

 

Please listen carefully to what Mr. Williams here said. To me, it's a good elaboration of what Mr. Powell said earlier this week about the actual rate hike. To me, those statements are not in conflict with what Mr. Powell said - they are more emphasized on clarity of the material points of what Mr. Powell said : FED will stay flexible, and there is no promise of two rate hikes in 2019.

 

- - - o 0 o - - -

 

There is one other issue at hand here that I see omitted in this discussion : What's next when the actual trade issues etc. creating all the noise at the moment are over? [Also, the North Korean denuclearization issue may pop up again in the near future.]: The US infrastructure program. - How do you think that may work out, if the US labor market is already to some extent exhausted, and the US economy running near max. capacity? -From that perspective, I personally think that FED actually did the administration a favor with the rate hike this week.

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This actually - to me personally, at least - supports in a great way, what rb posted above:

 

CNBC [December 21st 2018] : NY Fed President John Williams: The central bank is listening to the market, but believes the US economy is strong.

 

Please listen carefully to what Mr. Williams here said. To me, it's a good elaboration of what Mr. Powell said earlier this week about the actual rate hike. To me, those statements are not in conflict with what Mr. Powell said - they are more emphasized on clarity of the material points of what Mr. Powell said : FED will stay flexible, and there is no promise of two rate hikes in 2019.

 

- - - o 0 o - - -

 

There is one other issue at hand here that I see omitted in this discussion : What's next when the actual trade issues etc. creating all the noise at the moment are over? [Also, the North Korean denuclearization issue may pop up again in the near future.]: The US infrastructure program. - How do you think that may work out, if the US labor market is already to some extent exhausted, and the US economy running near max. capacity? -From that perspective, I personally think that FED actually did the administration a favor with the rate hike this week.

 

I personally found this to be an awful interview where he made zero sense.  He kept saying that they are listening and paying attention to the data etc etc. But what data are they paying attention too? Over the last two years they have raised rates from 0.5% to 2.5% in a straight line without pausing to take stock of what effect it is having.  Every single economic data point has or is in the process of rolling over. Every single credit market is in the strongest disagreement with their outlook.  What exactly are they waiting to hear? 

 

It was terribly hard to get the economy going again after 2008 and America has been one of the few countries where they seem to have gotten their noses above water.  Why not be at least a tiny bit cautious as you stamp on the brakes? 

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We can easily find ourselves in a self fullfilling prophecy if the market keeps on tanking fast and this spreads into real economy and/or other weak countries etc.

 

That is my primary concern as well.  I believe the Fed has an intellectual blind spot in this regard and I think there’s some chance that it will prove fatal this time. 

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That is my primary concern as well.  I believe the Fed has an intellectual blind spot in this regard and I think there’s some chance that it will prove fatal this time.

Hi SHDL,

(Trying to learn here)

Last October 19th, you mentioned: "Given what I know about this, I am squarely in the camp that thinks the Fed has done an excellent job post crisis." 

Please help me reconcile. What happened in the last 2 months?

I thought superheroes becoming villains overnight only happened in American movies. :D

 

This evolving narrative (not yours but the global one) :) is feeling really bizarre. I feel like watching a football game and we've reached the half-time of the greatest monetary experiment of all times and I see a completely different scoreboard. So, I will just follow with a few questions.

 

It was terribly hard to get the economy going again after 2008 and America has been one of the few countries where they seem to have gotten their noses above water.  Why not be at least a tiny bit cautious as you stamp on the brakes? 

 

"It was terribly hard to get the economy going again after 2008..."

This is not a new problem. If you look at the last cycles, the economy has become more and more amorphous and "recoveries" have become less and less satisfying.

 

---Inversion exercise---

 

-Why is that?

-Is it possible that growing global debt is at the heart of the issue?

-Is it reasonable to expect to recover from this issue by long bouts of suppressed interest rates?

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Nonsense.

It wasn’t historically hard. Just hard. Compared to the 1930s it was a walk in the park. And compared to the mid 1970s it was easier. So I totally reject your premise that things have been getting harder and harder on account of debt or anything else. .  I just meant it was hard enough to merit being treated with caution instead of charging higher relentlessly without waiting to see what effect it will have.

 

 

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Hi Cigarbutt,

 

Very good question.  My thoughts on this topic are pretty nuanced, so let me try and explain them as well as I can.

 

1)

 

I continue to believe the Fed did a great job post crisis — we (the US) got a very nice economic recovery (unlike so many others), and without high inflation.  Dual mandate accomplished!

 

2)

 

Although I think the Fed did great, I have the suspicion that they did great by accident.

 

Now why do I say this?

 

This comes down to how the Fed accomplished 1).  One big lever they pulled in the process was, as you know, QE.  But why & how was QE supposed to work?  The honest answer, I believe, was: they didn’t really know.  But they did it anyway and it “worked.”

 

My personal take on what happened BTW has to do with an idea that might be called “macroeconomic reflexivity” (to borrow the Soros lingo) — which is that right after the crisis the economy was stuck in a bad cycle where asset prices are low, so people feel poor, so they don’t spend, so economic activity is weak, and asset prices therefore remain low.  If that was what was going on, then it makes sense that the Fed was able to break that cycle by purchasing various financial assets and making their prices go up (i.e., QE). 

 

But that’s just my personal take, and as far as I know it is not part of the orthodox economic thinking that the Fed usually relies on.  In this sense QE seemed to me like a very unusual and interesting move by them because it was clearly pushing their intellectual boundaries.  It was almost as if they were playing with black magic.

 

3)

 

Because of 2), I do not have a great deal of confidence in the Fed’s ability to wind down QE without disrupting the economy.

 

In particular, given my take on QE above, I am worried that they will inadvertently reverse that process and create a downward spiral between declining asset prices and depressed economic activity.

 

I really really do hope I’m wrong about this though!

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Nonsense.

Facts:

 

Average annual growth of GDP during recoveries

 

before 1990:  4%+

1991-2001:    3.5%

2001-2007:    2.7%

2009-now:    2.1% 

 

Before sliding into political nonsense, please remember that this downward trend has transcended the political dimension and similar associated

trends are in plain sight for progressively weaker recoveries in employment, business capital investment, real productivity etc

 

@SHDL

On a personal portfolio level, I'm also very satisfied with the post-GFC recovery but it seems that mainstreet recovery has been quite muted and this may be part of the disconnect that people talk about these days.

Your post reminds me of when we close the door on our last guests who say that it had been a really great party and when we go back to the kitchen area.

 

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On a personal portfolio level, I'm also very satisfied with the post-GFC recovery but it seems that mainstreet recovery has been quite muted and this may be part of the disconnect that people talk about these days.

 

Right, I think a lot of it has to do with most of the gains from the recovery going to the wealthiest x% of the population.  Sadly, monetary policy is really too blunt a tool to fix that, and recent changes to the tax code have only made things worse.

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Jamie Dimon on Dec 6:

 

 

TL;DR

 

1. There is a risk that Fed is doing too much too fast. There is also a risk that Fed is doing too little too slow. Fed normalizing rates in a strong economy is a good thing. Fed should not overreact to the stock market volatility.

 

2. American economy is strong and is growing. Business order books are good. Consumer balance sheets are good. Companies are hiring. Wages are going up. There is a chance that unemployment will hit 3.3% this year.

 

3. On the other hand, you have a bunch of geopolitical risks: oil, Brexit and trade. Trade is probably the factor that is swinging the market the most. Not the direct impact of tariffs but the fear of the unknown. How bad can it get if the trade war gets out of control.

 

Speaking of trade, "I am the Tariff Man" tweet came out on Dec 4th:

 

https://twitter.com/realDonaldTrump/status/1069970500535902208

 

Fed hiked on Dec 19th.

 

Folks who blame Powell for the selloff should take a careful look at the market performance between Dec 4th and 19th. It ain't pretty. It would be easy to point finger at the Tariff Man and blame *him* for the correction. I'm not going to do that because that would be intellectually dishonest, just like it's intellectually dishonest to blame Powell.

 

It's a fools errand to attach a simple narrative to the market volatility. Yeah, it's a platitude, but apparently it needs to be repeated when folks say it's all Powell's fault.

 

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Nonsense.

Facts:

 

Average annual growth of GDP during recoveries

 

before 1990:  4%+

1991-2001:    3.5%

2001-2007:    2.7%

2009-now:    2.1% 

 

Before sliding into political nonsense, please remember that this downward trend has transcended the political dimension and similar associated

trends are in plain sight for progressively weaker recoveries in employment, business capital investment, real productivity etc

 

 

What great recessions happened in the 90s? Or 00-07?  What are these statistics referring to? Rrecoveries from the ‘98 EM stuff, nasdaq bubble, 9/11...stuff like that? That’s not what we are talking about here.  Are you honestly saying recoveries were easier from 1929 and 1973? And that things are just getting harder because we keep carrying more debt into these massive every 40 year type crashes? Bah

 

Anyway back to the Fed narrative. Just to be clear my comments earlier have little to do with the recent stock market gyrations. That stuff happens from time to time. I just question the constant raising with nary a pause to see where is the actual neutral rate. Williams and Powell talk like they know where the neutral range is but obviously they don’t because no one does. And the credit markets have staked trillions and trillions of dollars between 2 and 30 years and these guys have been of unwavering view over many months that the neutral rate is below where we are. Even the worlds forex markets don’t believe the Fed otherwise the dollar would be significantly stronger than it is versus a bunch of 0% currencies.  If the Fed happens to be right here it will be one of the greatest contrarian bets I’ve ever seen.

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