彭博电视完整采访——访谈实录

Stan Druckenmiller, the Chairman and CEO of Duquesne Family Office, sat down with Bloomberg Television’s Stephanie Ruhle to discuss China’s economy and stock market, Greece possibly exiting the euro and the concern over a contagion in the region.

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Stan Druckenmiller: Zero-Interest Rates Unnecessary Now Stan Druckenmiller: Won’t Be Contagion with ‘Grexit’ Stan Druckenmiller: China Stock Gains Signal Economic Recovery

On an interest rate increase, Druckenmiller said: “My fear is we’re not going to see anything for a year-and-a-half because they set up metrics eight or nine months ago…I have no confidence whatsoever that you’re going to see rate hikes in September or December or whenever because when they lay out metrics and then they change, and then they change again, and then they change again, who knows where — when they’re going to go.”

On Greece leaving the Euro Zone, Druckenmiller said: “Draghi has QE at his disposal. My guess is there won’t be contagion, but even if there is, he can contain it, and soon as market participants see that, you won’t get contagion.”

Druckenmiller would not comment on whether he would back Christie if he decided to run for president. On Hillary Clinton’s announcement he said: “I don’t know. I think old people like Hillary Clinton and I shouldn’t try and be cool with social networks, you know, maybe she should leave that stuff up to Chelsea.”

On why he loves millennials, Druckenmiller said: “They’re smart. They’re entrepreneurial. They have energy. I love being around kids. I couldn’t figure out why all these 70-year-olds wanted to hang out with me when I was 27. Now I understand, and I’m trying to steal their energy from them like they stole from me at the time.”

[drizzle]

Stan Druckenmiller: Zero-Interest Rates Unnecessary Now

Stan Druckenmiller: Won’t Be Contagion with ‘Grexit’

Stan Druckenmiller: China Stock Gains Signal Economic Recovery

STEPHANIE RUHLEStan, you’re experiencing deja vu. You think it’s just like 2004. Why?

STAN DRUCKENMILLERNot just like 2004, but it certainly rhymes. Back in late 2003, I remember we had nine percent nominal growth, seven percent real growth. The economy was very, very strong, but we had one percent interest rates, and we also had a tag on them that they were going to remain there for a considerable period, and I just felt at the time that fed policy was unnecessarily easy. They wanted to ensure that the economic recovery got enough momentum. I was more fearful because, historically, I’ve done a lot of work analyzing central banks and subsequent activity, and we’ve had problems in the past when monetary policy was too easy, and I just thought it was unnecessary. I was worried that some trouble might be brewing, but I didn’t — I couldn’t put my finger on what it was. I just knew that we were running an unnecessarily lose monetary policy, and it may have consequences down the road, and that’s kind of how I feel now. I think we’re taking a terrible risk reward in terms of zero rates. Everyone keeps asking me, well, how is this going to manifest itself? I don’t even know whether it is going to manifest itself. I just know that the rates are unnecessary, and, again, it’s sort of the same language, oh, the risk of going to early is greater than going too late. We need to ensure the recovery, and I’m more worried about things down the road than looking in the near term, and I think a lot of the dialog about this is far too myopic, rather than trying to look at things in a longer -term perspective.

RUHLESo are you saying whether they raise in June or September, isn’t the issue, it’s a fact that rates have been so low for so long, that’s the real problem?

STAN DRUCKENMILLERI don’t want to describe this as a real problem. What I’d like to describe is a situation where we went through a financial crisis. Immediately, as that financial crisis unfolded, the fed took dramatic and aggressive steps, which were hindsight or about as close to perfection as you could achieve. I say that because we were in the initial stages of a balance sheet recession, and we had one in the 30’s that turned into a depression, so the fed took aggressive measures to rebuild the consumer and, frankly, the whole country’s balance sheet, so the reward was tremendous if you could get asset prices back up and not have the meltdown in economic activity you had in the 30’s, and there was very little risk, so it was sort of a no-brainer. Today, if you look at the situation, stock prices, household net worth per capita, are at record highs. By the way, they went to record highs in 2013, and they’ve been going up for two straight years, so I’m not sure exactly what the fed is trying to achieve in terms of the reward here; particularly, since if you look at what is going on, we’ve had a tremendous amount of debt growth; particularly, in the corporate sector, and, unfortunately, the productivity of that debt, if it was measurable, I would opine to say is at an all-time low. Why did I say that? Because there’s good debt growth, and there’s bad debt growth. Good debt growth is when you borrow money, and it goes into the real economy. You do capital spending. You build businesses. But by most calculations, almost 98 percent of the current debt growth has gone into M &A, cooperate buy-backs, by the way, at record prices, leveraged buy-outs, so where it’s going is into financial engineering, and I can’t prove it, but I would pretty much feel very confident that a trillion dollars in buy-backs, and dividends in the last year and four trillion is the forecast this year for M & A, is a job reducer, an economic reducer, so I don’t exactly what they think they’re getting out of the zero percent rates.

RUHLEWell, these are CEO’s who are worried, who know that they have to answer to demanding shareholders, possibly activist investors. Larry Fink has come out and said these companies do need to reinvest, need to grow, and it’s not what they’re doing.

STAN DRUCKENMILLERYeah. Well, we live in a culture where you go through various periods of something being in fashion and something being out of fashion.

RUHLEActivism is in fashion?

STAN DRUCKENMILLERAnd right now, listening to activists is in fashion, but I would say if you’re the fed, you have to take that into account, and if what you’re getting for zero rates is just a bunch of financial engineering rather than demand — and, by the way, you’re getting a releveraging of our economy that never really deleveraged the last time. You’re setting up the possibility, the possibility, of another asset bubble investment bust. Now, I want to be very clear; I’m not forecasting an asset bubble investment bust two or three down — years down the road. What I’m saying is, if you’re a policy maker, the risk reward is so skewed right now because the zero rates aren’t getting you anything substantial, in my opinion, in terms of economic growth, as opposed to the reward when they went into this stuff five or six years ago, but the debt growth is accelerating, so, to me, it’s not so much that I’m predicting some catastrophe in three or four years. I’m not. I’m just saying as someone who lives risk reward every day, the risk reward of going too early, to me, is much more favorable than going too late, and I don’t hear anybody saying that. All I hear is the opposite. The risk of going too early is much greater than going too late. Well, if the risk of going too early is, oh, my God, another taper tantrum, or, God forbid, a ten percent correction stock prices or maybe a slow down in GDP growth, and you have the potential — and I only say the potential — for a deflationary and then something even more serious down the road, it seems to me a no-brainer. By the way, 25 basis points, really? Twenty-five basis points. We’d still have negative real rates. Do they actually think 25 basis points is going to bring on the next depression?

RUHLEWell, in Ben Bernanke’s recent bloggings, he’s basically saying, it’s not the fed who created this situation. The fed responded to slack in the economic, to overall conditions, so he’s not saying it’s the fed. He’s saying, they’re just trying to help hold up the economy.

STAN DRUCKENMILLERWell, why does the economy need holding up now? I mean, retail sales at an all-time high. Everything is booming except for capital investment, and I just told you why I thought that is. I don’t know why it needs extraordinary help here. Should we maybe have negative real rates? Yeah. But, by the way, one percent fed funds would be negative real rates. These guys, in 2009, came up with a knew investigation of the Taylor Rule.

RUHLEWho’s these guys?

STAN DRUCKENMILLERThe fed, the academics. I believe Mr. Bernanke, Chairman Bernanke, actually cited it, that said, if they could, they’d like rates at minus four percent, and because they couldn’t do that, they did QE. Do you know where that version of the Taylor Rule they were using says fed funds should be today?

RUHLEWhere?

STAN DRUCKENMILLERThree-and-a-half percent. Now if you use the traditional Taylor Rule, which said at the time rates should be minus one percent, that says we should be at 175. There is no traditional theory that say rates should be at zero at this stage of a cycle.

RUHLEThen are you puzzled by the academics right now? When I read Alan Blinder who’s saying he likes a patient fed, are you saying, what are these guys thinking?

STAN DRUCKENMILLERNo. I think I know the article you’re referring to. I just think they’re very myopic, and, by the way, it’s hard. We haven’t pulled the trigger in many, many, years, and I’m not saying it’s easy to be the one to stand up there and get us off the juice we’ve been on for six to eight years. I’m just saying the time has come. I thought the time came six months ago. The risk reward is skewed toward early, and watch and see what’s developed because when you asked about June, September, every month that goes by, we have more and more financial engineering, and easy monetary policy, I think every academic would agree, borrows from the future. It’s a temporary demand stimulus to borrow from the future. It makes sense to borrow from future generations and from future people when unemployment was ten percent. Why does it make sense to borrow from the future generations when unemployment is five-and-a-half percent? I don’t get that.

RUHLESo is Janet Yellen is in a no-win situation? Given where rates have been for so long, it sounds like you’re saying June or September isn’t even relevant. What can she do?

STAN DRUCKENMILLEROh, I think it’s relevant. I’d much rather see June. My fear is we’re not going to see anything for a year-and-a-half because they set up metrics eight or nine months ago. They were met three or four months ago, so then they changed the metrics, and I have no confidence whatsoever that you’re going to see rate hikes in September or December or whenever because, you know, when they lay out metrics and then they change, and then they change again, and then they change again, who knows where — when they’re going to go. And by then, how far will the financial engineer going [sic] and how far will the debt go? This is all pay me now or pay me later. I agree, if you go a quarter, it might do a few things to markets and so forth, but if you wait and you go a year later or two year [sic] later, it’s going to do much, much more.

RUHLEIs that why you’re so much more concerned today? Because you’ve been warning about fed policy for over a year. Why today are you ringing the bell so loud? Because we’ve been ignoring it. You were — it seemed — you seemed to be positive on Janet Yellen a few months ago.

STAN DRUCKENMILLERI’m not really ringing it so loud. I gave a private speech to my private community in Florida in January where there would be no press.

RUHLEShame on you. Welcome to the world of social media.

STAN DRUCKENMILLERCome on. I guess someone had a cell phone there. There’s a transcript of it with a bunch of unintelligibles on it.

RUHLEYou thought just someone in an exclusive community might have a cell phone. Yeah, they do.

STAN DRUCKENMILLERSo in response to that, as you know, it’s gone viral, and there’s all sorts of headlines, I’m predicting a crash. I’m predicting doom. I’m not. I’m merely saying that someone who practices risk reward for a living, the risk reward of going early is a much better bet than waiting going late. Why am I saying this? Why am I coming out on this? Mainly, because every article I read says just the opposite.

RUHLERay Dalio says 1937 is happening all over again.

STAN DRUCKENMILLERI have trouble with the 1937 analogy.

RUHLEHe is up 14 percent this year.

STAN DRUCKENMILLERSo.

RUHLEAll right. So why do you have trouble with 1937?

STAN DRUCKENMILLERI just think the two periods are quite different. Number one, I already talked to you about the effects of a balance sheet recession. In 1937, the stock market and household net worth were still 20 percent below where they were in 1929, eight years later. As I’ve already stated, our stock prices and household net worth are at new highs, so the balance sheet is not in the state it was back in, in 1937. Number two, from 1930 — 1929 to 1937, we had cumulative 18 percent deflation in this country. From 2007 until now, we’ve had cumulative 16 percent inflation, and the fed’s favor measure of inflation has never been below one percent in any of those years, and, finally, in 1937, unemployment was still over 14 percent. It’s currently five-and-a-half percent, so I have a lot of respect for Mr. Dalio, but, you know, I guess that’s what makes markets. I see things differently.

RUHLEStan, we hear from a lot of people talk about deleveraging. You don’t see this?

STAN DRUCKENMILLERNo. We’ve had — we’ve releveraged from an already high level six years ago. That’s how we get into this is. We had too much debt, but the facts are world debt, according to McKinsey, the last six years, has grown 57 trillion dollars. That’s with a T, 57 trillion. In 19 — in 2000, debt — world debt to GDP was 246 percent. In 2007, which everyone thought was a high level, it was 269 percent. It’s currently 290 percent, so there has actually been not only not a deleveraging from the high levels of 2007. We’re doubling down on increasing the debt.

RUHLEBut who’s the we? Because in terms of corporates, people are thrilled about corporate balance sheets. They say they’re reducing debt. Are they wrong?

STAN DRUCKENMILLERYes, they’re wrong. Corporate debt in 2007 here, cooperate credit, was three-and-a-half trillion. Where do you think it is now? Take a guess. That’s an elevated level, 2007.

RUHLEI don’t know. Where are we now?

STAN DRUCKENMILLERSeven trillion. It’s gone from three-and-a-half trillion to seven trillion. And, by the way, we’re not talking about quality stuff here.

RUHLEWhat are we talking about?

STAN DRUCKENMILLERHigh-yield loans, which were 800 billion then are trillion four now. Covenant light loans, which were a hundred billion then are five hundred billion now at a three hundred billion-dollar run rate. The debt back then was — 28 percent of it was B rated. It’s now 71 percent B rated. This is 2007 and I’m talking about, which I think the fed and everyone else now agrees was sort of a bubbly period.

RUHLEThen why is that getting ignored? We see high-yield deals come to market every day, and the argument is, these companies have much stronger balance sheets. Is someone not reading the prospectus?

STAN DRUCKENMILLERI haven’t heard they have much stronger balance sheets, but I have heard that there zero rates, and I have no other choice to do with my money, so four or five percent looks great if I’m going to get zero, or if I live in Europe, and I’m going to get minus 28 for a German two-year.

RUHLEOkay. Well, then that takes us back to 2006, 2007. People played in the credit markets who shouldn’t have, and then when they froze up, they couldn’t get out. So you think we’re in a credit bubble?

STAN DRUCKENMILLERI think the risk of a credit bubble is extremely high, and if it’s not addressed pretty soon, things could look difficult three or four years down the road.

RUHLEAnd how does it need to get addressed?

STAN DRUCKENMILLERWell, a good start would be raising rates all the way to 25 basis points.

RUHLERealistically?

STAN DRUCKENMILLERNo. That would be a big step. We had the credit growth from 2000, 2006/7 because we had negative real rates in there for three or four years. We have incredibly negative real rates right now, with, by the way, the unemployment rate where it was in 2004 and 1996 were considered boom times, but we have zero rates.

RUHLEAll right. Well, how about Larry Summers? Lar — you mentioned being too myopic. Larry is saying the thing to be concerned about is bond market liquidity. Isn’t that just one factor? There’s a whole lot of things to look at.

STAN DRUCKENMILLERWell, I find it curious that Larry has now become a market listener, and he wants to listen to the bond market because the stock market and the currency market are sending completely different signals, so I wouldn’t be too concerned about bond markets sending a signal when the fed has just bludgeoned every participant in it that rates are never going up. They’re going to be low for long. They’re going to be shallow, and maybe German two-years at minus 28 basis points. Maybe that’s not a natural clearing rate, and that’s a — sort of a rigged price, and maybe, just maybe, some of those people don’t want to pay you 28 basis points to give you their money, and maybe some of that has leaked over into the treasury market.

RUHLEPaul Krugman has said, you hear from guys like Stan. They’re talking their book. But what puzzles me about that, you’ve had a great year; even though you’re very negative. So what exactly — how really do you respond to that?

STAN DRUCKENMILLERFirst of all, I’m not very negative. I’ve never said anything negative. I’ve just said —

RUHLEYou’ve said a lot of negative things.

STAN DRUCKENMILLERNo. I said policy has a certain risk reward aspect to it, and the risk of going too late, to me — because I think long-term, not in the near-term — are higher than the risks of going too early. In terms of talking my book, I would only say this. First of all, markets have been very accommodating to my style of investing the last several years, and, luckily, we’ve taken full advantage.

RUHLEWhat does that mean, accommodating to your style of investing?

STAN DRUCKENMILLERThere have been major trends in macros. There’s been a bull market in a lot of equity markets, and it’s been very conducive to making money, and to some extent, it’s been rejuvenating because it’s felt like the old days. The other thing I would say, in terms of talking my book, as you said, I’ve been saying this for a while, and my style of investing, I can change my positions in 24 hours, so I don’t get why this is about talking my book if I’ve been saying it for a year, and I could have changed my portfolio within 24 hours.

RUHLEYou said the one thing that you learned, the most significant thing from George Soros, when you see it, bet big. Is there something clear that you see right now that would make sense? This is where you want to make a bet.

STAN DRUCKENMILLERWell, there was a while ago, and I’m still there.

RUHLEWhere?

STAN DRUCKENMILLERWell, I think the divergence between the flipping and divergence of monetary policies between the United States and Europe in May of 2014, presented a textbook opportunity in currencies where we were tapering, ending QE. They were going to start QE. They had gone to a negative deposit rate. We are, frankly, at least, flirting with some day getting off the zero bound, and the Euro was over valued for a long, long time because they were shrinking their balance sheet while we were increasing ours, and I’ve never seen a major currency trend last less than two years, and it’s only been ten months, so it would be remarkable to me if the run on the Euro was over. It wouldn’t be remarkable if we paused for a while the way the Yen did in 2013 and went sideways, so that’s one big bet that hasn’t changed for quite a while. Another big bet is Japanese equities, European equities. Those are the only big bets, but I have some new ideas I’m flirting with.

RUHLEWhat?

STAN DRUCKENMILLERWell, I’m pretty optimistic on crude prices.

RUHLEWhy?

STAN DRUCKENMILLERI think they’re going to do better than the forward curve. Well, because as my protégé, Zach Schreiber, said a year ago, the cure for high prices is high prices. Well, he would also say now the cure for lower prices — low prices is low prices.

RUHLEWhat does that mean?

STAN DRUCKENMILLERWhat it means is, prices at $50 have caused a lot of behavior in terms of future production and exploration budgets that it should pretty much clear up the supply/demand outlook by early 2016, and I think that’s very different than the world’s thinking. I also think there’s one other wildcard. The Chinese stock market is up, I don’t know, 140 percent in six months after being in a downtrend for five to seven years, and it’s doing so on record volume with record breadth. If it was any other stock market or certainly any developed market, I would tell you, being a market observer, there’s a 98 percent chance China will be in a cyclical boom 6 to 12 months from now. Because it’s China, and we don’t know the nature of what we’re dealing with here relative to normal mature developed markets, I would downgrade that assessment from 95 percent, but I would still hold it over.

RUHLEBecause you don’t trust the data, Jim Chenos style?

STAN DRUCKENMILLERNo. It’s not the data. I’m watching the markets, and whenever I’ve seen a stock market explode on record volume and record breadth and move to that degree, like day follows night, 6 to 12 months down the road, you’re out of recession, and you’re into a full-blown recovery. The reason that happens, I think there’s enough of that, that it’s certainly greater than 50 percent China will be in 6 to 12 months, and just think of how differently the world is thinking about that. The fed had it in their minutes last month that one of the reasons to delay, or one of the things of concern was the Chinese economy. Christine Lagarde was on the cover of the Financial Times last Friday. Her biggest worry, the Chinese economy, so as someone who’s trying to think of what security prices might look at 6 to 12 months down the road, I’m very intrigued with, A, the possibility of a Chinese economic recovery, and how differently we all might be thinking if it’s actually unfolding later in the year.

RUHLENo concerns that stocks listed in Shanghai and Shenzhen are overvalued?

STAN DRUCKENMILLERWell, I’m not — first of all, no. Over valuation doesn’t concern me at all. I’m not even opining on the stock market. I’m opining on the transmission mechanism, the stock market to the economy, but I would point out that the H shares in Hong Kong representing China are 10.1 times earnings. I mean, I bought the NASDAQ at the high end, I mean, in 2000 when it was a 150 times earnings, so I’m not talking about valuation or even the Chinese stock market here. I’m talking about when you get this kind of thrust, when economic activity is weak, in a normal market, you get a big economic response 6 to 12 months down the road. Because it’s China, I think we’re talking about 70 percent, but the market is probably at 15 percent on that.

RUHLEBut what about the argument that so many Chinese have now invested in their own market as an alternative because the real estate market is so poor there?

STAN DRUCKENMILLERWhat about it? My first boss asked me a question when I was 22 years old. Do you know happens to the money when the stock market goes down? I said, I don’t know. It goes into the bond market. He said, no. It evaporates. It evaporates. You know what happens when stock prices go up? Wealth goes up. Confidence goes up. Economic activity generally goes up, so the more, the merrier.

RUHLEYou think Greece is leaving the Euro Zone?

STAN DRUCKENMILLERProbably.

RUHLEDo you care?

STAN DRUCKENMILLERI’d care a lot more if I were Greek. I think if you mean, do I care as an investor.

RUHLEYes, not as a vacationer.

STAN DRUCKENMILLERYou know, the banks don’t own Greek debt anymore. Draghi has QE at his disposal. My guess is there won’t be contagion, but even if there is, he can contain it, and soon as market participants see that, you won’t get contagion. I don’t get this theory about how Greeks flushes themself [sic] down a toilet and puts themselves through misery, and all the Spanish and Italians go, oh, gee, we — let’s do that, too. I think a more rational response is for them to go to reform and become more embedded in Europe, not less, so I prefer to see Greece stay in the Euro Zone for a lot of economic market reasons and maybe humanitarian reasons, but as a market participant, I think it’s — it’s way over analyzed and way over rated.

RUHLEIs the ECB falling into the same trap the fed did in loosening monetary policy?

STAN DRUCKENMILLERI don’t know. Because it’s more like 2009 and 2010 here, and since I was an advocate of it there, I can’t certainly advocate against it. Since I was an advocate of it here, I can’t advocate against it there. Having said that, you know, minus 28 basis points on a two-year, and then there’s an article in the journal this morning about some woman borrowing money, and the bank has to pay her to borrow. I mean, it’s — it gets a little strange.

RUHLESo when you say, for example, you like European equities, or there’s buying opportunities there, do you actually see economic recovery, or you just see, from an investor standpoint, some bargains out there you can make money on? Because those are two very different things.

STAN DRUCKENMILLERNo. I see economic recovery, and I see a lot of great companies. We just had a discussion about China. Analysts have been downgrading BMW and Volkswagen because of their Chinese exposure. What do you think happens with a weak Euro giving you an earnings tailwind if Chinese [sic] recovers — if China recovers? You got great companies like Airbus that now are much more competitive than they were against Boeing, but all our anecdotal evidence is Europe has actually turned. It looks pretty good.

RUHLEDo you have a favorite company right now?

STAN DRUCKENMILLERIn Europe?

RUHLEYeah.

STAN DRUCKENMILLERI like the tel-cos a lot, Altice Italian Telcom, but I like the ones I just mentioned, too. I don’t have a favorite. I have a portfolio.

RUHLEIn your private speech in Florida, you said you thought the Euro could go into the 80’s. What do you think now?

STAN DRUCKENMILLERWell, I’ve had that forecast for 10 months and it remains unchanged. That would be — there are a number of things that point there. Number one, I — that would be about the average move in a currency when they get into a big trend. I can’t quite remember but I think it’s 55 or 60 percent, and that would target that. Number two, when people kind of look astounded when you say it could go to 80, it was at 82 in 2000. Just roll back in your mind where we were in 2000, perceptions of Europe versus the perception of the United States. Do you think the United States is stronger or weaker relative to the Euro than it was in 2000?

RUHLEStan, there’s been lot of commentary in the financial press, even comments from the fed on the effects the strong dollar could have on the US economy. What’s your take?

STAN DRUCKENMILLERStephanie, as you know, I’ve been analyzing currencies and their effect on the economy for the better part of 40 years. It’s a big piece of what I do for a living. And, honestly, I can find no correlation between the level and direction of the dollar and the economy, and, intuitively, it doesn’t make a lot of sense because what happens is, it’s definitely negative for corporate profits. That’s unequivocally true. But that’s a very small part of the economy relative to who it benefits which is the consumer, so the consumer, who is 70 percent of the economy, gets a big increase in purchasing power when the dollar goes up, so I’m kind of befuddled by it, and, you know, just looking back at the evidence, the dollar went from 80 to 160 by June of 2008. Under the dollar theory, shouldn’t we about to be going into a economic boom and some great inflation in 2008? My recollection is, that’s not what happened subsequently, or I remember when I was at Soros, the Yen went from 78 to 147 in a very rapid period of time. I think in about a year in 1995, 1996. Did Japan experience this great economic growth because their currency went down 50 or 60 percent? In fact, when I look back, a strong dollar has been associated with a strong economy. I’m not saying it causes it. It’s kind of like saying ice cream causes hot weather. I don’t know the cause and effect, but I will say I’ve been looking at this for a long, long, time, and while there is evidence that the dollar affects corporate profits, I can’t find the evidence that a currency has that big an impact on economic activity.

RUHLEWhat do you think about IBM today?

STAN DRUCKENMILLERI’m encouraged that they seem to have taken some steps to re-balance between financial engineering and investing. I’m discouraged that they’re still so timid in that direction.

RUHLEStill short?

STAN DRUCKENMILLERI don’t comment on that.

RUHLEI want to go back for a minute. We were talking buy-backs, and sort of how corporates are managing their businesses right now, and it seems that they’re answering to shareholders, not reinvesting. Can you blame CEO’s? Look who they have to answer to. They kind of have to make short-term decisions, much like we’re seeing policy makers do, so what do you expect CEO’s to do?

STAN DRUCKENMILLERI’m not criticizing CEO’s. I haven’t said a thing other than their behavior changes the risk reward of zero rates going early versus late for monetary policy. I see them having to respond to shareholders or they lose their job. I do think maybe it’s the reason a lot of these tech companies are staying private so they can look at their businesses and run them long-term and not short-term.

RUHLEWhat do you think about tech valuations right now? I remember you saying to me, one mistake you made was getting emotional about investing. You took yourself back to 1999, and you looked at the guys around you who were buying all these hot IPO’s. You jumped in because you were jealous and you were excited, and you got your head blown off.

STAN DRUCKENMILLERIt was 2000. It was the exact top. I wish it was just `99. I think tech valuations, at least in the private market, are kind of crazy. I don’t know, Snapchat.

RUHLEYou love Snapchat.

STAN DRUCKENMILLERI loved it but it was two billion, I think, back then, and now it’s twenty billion, and they don’t have any revenues yet. It could be great. I think it’s a great company. I think Evan has got a great vision. It’s a fancy price. Uber, fancy price. There’s a lot of them that are quite high. Having said that, it’s certainly not like 2000 because we’ve never had networking effect before, so you can have companies get 500 million customers that they didn’t have three years ago and then monetize it, so, look, I think it’s all part of a product of zero interest rates, but I don’t think it’s outrageous the way it was in 2000.

RUHLEYou’re not that concerned.

STAN DRUCKENMILLERI don’t know whether I’d go that far.

RUHLEI want to touch on it. You had said before, it’s not activists you’re concerned about. It’s the fact that we’re following activists. We’re listening to activists. I don’t see that changing anytime soon. We spend more time talking about Bill Ackman, David Einhorn, Carl Icahn, than anyone else. How we going to get out of this if it’s a mistake?

STAN DRUCKENMILLERI don’t see it changing either, but it’s the myopia of everything on our side today. It’s the political structure. You were very helpful a year or two ago when I went on the college tour. Everyone lives for today. No one wants to look five or ten years down the road, so until that changes, and I sure don’t see how it’s going to change anytime soon, you’re probably right.

RUHLEBill Ackman says the biggest risk he sees is the student loan market. He sees billions in student loans that are simply not going to get paid back. Do you agree?

STAN DRUCKENMILLERYeah. I don’t know whether it’s systemic, but, of course, they’re not going to get paid back, and, you know, it’s very, very reminiscent of the housing thing. With great — I don’t mean in terms of a systemic risk. With good intention, you had a subsidized market which increased demand, and, you know, when you screw around with markets, this is what you end up with, but I saw your piece with Bill, and, yeah, it’s accurate.

RUHLEDo you think student loan could be the next subprime?

STAN DRUCKENMILLERNo. But I think they can be one piece to a potentially dangerous puzzle.

RUHLEWhen you first took a look at subprime, the first time you were presented with it, how scared were you? How concerned? Like, when you’re saying now, well, I’m somewhat concerned about student loans, is that how you felt when you first looked at subprime? Or from the get-go, did you say, man, this is a flaming pile of garbage?

STAN DRUCKENMILLERWhat happened was I got concerned that fed policy was out of whack in 2003 and 2004, and I had this gentleman come in from Bear Stearns in 2005. It’s incredible because Bear Stearns, as you know, when under because of subprime, and he worked there, and he laid out for me in a monthly schedule and convinced me in a half an hour that the economy couldn’t make it past the third quarter of `07 because the subprime that this was going to be a monumental bust, and the hair was standing on the back of my neck by the time he was finished, and as you probably know, I think a month later, I gave the speech at Ira Sohn in 2005. I was just plagiarizing everything this guy gave me.

RUHLEWhat happened to that guy?

STAN DRUCKENMILLERI hired him at Duquesne.

RUHLEWell, we just heard from a politician who you’ve supported in the past, Chris Christie, about entitlement reform, something you care a lot about and means testing. Does Chris Christie have a chance at anything anymore? He’s a guy you backed in the past.

STAN DRUCKENMILLERHe’s a tremendous talent, tremendous communicator, and that speech he gave today, I mean, what guts. We’ll see how it plays out, but if there’s anybody that can deliver that message, it’s Chris.

RUHLEDo you believe entitlement reform will be an important theme in the 2016 election?

STAN DRUCKENMILLERNo.

RUHLEDoes that break your heart, disappoint you?

STAN DRUCKENMILLERI kind of gave up for the time being a year or two ago. I thought we had an incredible window when the sequester fight was there, and that’s why I was so vocal at time. You try and strike when you think you can have an impact, and, as you know, the kids got very excited, but they didn’t seem to stay excited three or four months down the road. The one chance entitlement reform, I think, has becoming a big chance in 2016, is the communication skills of Chris Christie, and I wouldn’t count him out. We’ll see what happens, but it’s a tough and courageous road.

RUHLEWould you help Chris Christie? Would you back him if he decided to run for president?

STAN DRUCKENMILLERI think he’d be a great president.

RUHLEWould you back him?

STAN DRUCKENMILLERI think he’d be a great president.

RUHLEWhat do you think about Hillary Clinton’s announcement?

STAN DRUCKENMILLERI don’t know. I think old people like Hillary Clinton and I shouldn’t try and be cool with social networks, you know, maybe she should leave that stuff up to Chelsea.

RUHLEDo you want to get behind Jeb Bush? It seems that a lot of people here in New York, specifically, the financial industry are pretty excited about him.

STAN DRUCKENMILLERI think he would be a great president.

RUHLEAre you going to support him?

STAN DRUCKENMILLERI think he would be a great president.

RUHLEAre you concerned at all — listen, you’re in a position to be a very big political backer. If we have Hillary Clinton and Jeb Bush running for president, the amount of money that is going to be poured into this election is beyond grotesque. You could be a big contributor to pouring that money in, money that could really help save the environment, the country, Harlem Children’s Zone.

STAN DRUCKENMILLERI’d rather give to Harlem Children’s Zone.

RUHLEBut what do you make of this, though?

STAN DRUCKENMILLERIt’s a free country.

RUHLEIt is what it is?

STAN DRUCKENMILLERYeah. It’s a free country. Apparently, that’s people’s priorities. Look, I don’t have any judgments or issue about people that give to politicians. I give to some politicians, but I will say that my weighting is heavily, heavily, skewed toward not-for-profits that I think can move the needle in other areas.

RUHLEClimate change, how do you feel about the fact that there are republicans today who won’t even acknowledge it? You’re someone who has been passionate, who’s done a ton for the environment. What do you think about the fact that we have political leaders that are — that no longer even acknowledge it?

STAN DRUCKENMILLERWell, I think that’s weird given the science. On the other hand, I do think some of the shrillness on our side is really weird because —

RUHLEWhat does that mean?

STAN DRUCKENMILLERWhat it means is, we’ve had a lot of natural cycles where the climate — one of which was the Ice Age — where the climate moves more than mankind is moving it. Now, I agree, we’re moving it, and I think that’s an indisputable scientific fact, but I’m not sure throwing everything out and going crazy on the climate issue is appropriate relative — again, it’s a risk reward thing.

RUHLEWhat is the most important issue?

STAN DRUCKENMILLERWhat, on climate?

RUHLENo. So for you, back up to you.

STAN DRUCKENMILLERI mean, I — I — let me be clear on this. I think climate, A, it’s fact. I mean, it’s just science for God ‘s sake. It’s a fact. B, it’s not a bad deal if you go and try and stop a bunch of pollution because of climate, and you not only get a cli — you get maybe some temperature (inaudible). You get clean air. So it’s a no-brainer, risk reward, to address it. I think, though, if you go overboard, and start shutting down economic activity, there’s a balance there.

RUHLEI don’t want to go away from entitlement reform just yet because it makes me think Social Security. Recently, we’ve heard from Elizabeth Warren and Paul Krugman that they think Social Security should be expanded, sped up. What do you make of that?

STAN DRUCKENMILLERIt’s not even worth discussing.

RUHLEAll right. As we approach the election, what is the most important issue for you? For you to get behind a candidate, what matters most to you, Stan?

STAN DRUCKENMILLERThe most important issue for me is we have a leader who doesn’t look myopically and is more interested in the long-term. If you’re talking about a single —

RUHLEHow you going to get elected with that?

STAN DRUCKENMILLERI don’t know.

RUHLEPeople don’t vote that way.

STAN DRUCKENMILLERWell, we haven’t had maybe proper communication. I don’t know. But if you’re talking about a single issue, I think tax reform.

RUHLERaising minimum wage, does it do anything for the economy?

STAN DRUCKENMILLERYeah. It kills some jobs.

RUHLEYou said something to me a year ago that you were the most excited of everyone you’ve ever hired before, you absolutely love millenniums. Maybe it’s because you’re a father. You’ve got millennials. Here we are a year-and-a-half later when there are so many who seem to be complaining. They’re unhappy with the cities they live in. They’re unhappy with the job opportunities. Are you still that excited about this generation, you have so much hope; especially since they didn’t bite in terms of the entitlement reform campaign?

STAN DRUCKENMILLERI am excited. I’m so excited that I haven’t hired anybody since I stopped managing client money, and I just hired two 27-year-olds in the last two or three weeks, and I can’t work — wait to work with them.

RUHLEWhy? What is so special about them?

STAN DRUCKENMILLERThey’re smart. They’re entrepreneurial. They have energy. I love being around kids. I couldn’t figure out why all these 70-year-olds wanted to hang out with me when I was 27. Now I understand, and I’m trying to steal their energy from them like they stole from me at the time.

[/drizzle]

HFA Staff

The post above is drafted by the collaboration of the Hedge Fund Alpha Team.

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