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Stan Druckenmiller on Entitlements, Fed, Strategy


dcollon

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I liked the FED and Strategy discussion.  Maybe I liked it because my ears perked up when he hinted that he was long bonds several months ago (reading between the lines) because he thought the market might turn down, but admitted he was totally wrong.  Or maybe I was hearing things due to my own bias, ha ha.

 

 

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Does anyone have any data that supports his claim that lots of debt is used for job destructive LBOs/M&As? I was just talking about this with a friend of mine. If these financial moves cut jobs significantly on average then aggregate demand will go down and the LBO/M&A return would be affected as well. Kind of like a double edged sword beyond some threshold.

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Does anyone have any data that supports his claim that lots of debt is used for job destructive LBOs/M&As? I was just talking about this with a friend of mine. If these financial moves cut jobs significantly on average then aggregate demand will go down and the LBO/M&A return would be affected as well. Kind of like a double edged sword beyond some threshold.

 

Evidence is anecdotal.  But a lot of these activities are centered around the idea of synergy, aka job cuts.  The hope is capital created this way may find its way into creating more productive activity.  Nobody really tabulates statistics in this fashion, but the creative destruction process works in mysterious ways.  On the margin, he could be correct.

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Does anyone have any data that supports his claim that lots of debt is used for job destructive LBOs/M&As? I was just talking about this with a friend of mine. If these financial moves cut jobs significantly on average then aggregate demand will go down and the LBO/M&A return would be affected as well. Kind of like a double edged sword beyond some threshold.

 

Evidence is anecdotal.  But a lot of these activities are centered around the idea of synergy, aka job cuts.  The hope is capital created this way may find its way into creating more productive activity.  Nobody really tabulates statistics in this fashion, but the creative destruction process works in mysterious ways.  On the margin, he could be correct.

 

So to sum up and to add a bit on:

 

Here's what I think about when he says "borrowing from the future" in regards to these activities.

 

As interest rates remain low for a prolonged period these synergy activities will trickle down to smaller firms, e.g. 1435 announced M&A deals below $100m for 2015. Some of these bankers/managers are not the best capital allocators. Usually these firms are too small to move the needle. However, in the aggregate and over a longer time period they'll get too irresponsible with the capital/job cuts enough to move the needle. To compound their troubles, a raise in interest rates will raise the payments on the floating rate portion of their debt. I'm using size here as a proxy for capital irresponsibility but there's probably a better metric. 

 

Sound about right?

MA_Trends_From_SP_Capital_IQ_Global_Markets_Intelligence_-__3-31-2015.pdf

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DealBook Conference Nov 3, 2015 - The Other Investors’ Perspective

 

Always interesting to watch: A conversation about the lessons from decades of investing with Stanley Druckenmiller, founder, Duquesne Capital Management.

 

 

So Druckenmiller is bearish, just look at his tie. It is full of polar bears.

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