Dear Reader,
Happy Friday!
Today I want to talk about a piece I picked up from Stanley Druckenmiller.
Stanley Druckenmiller is a former hedge fund manager, multi-billionaire, who basically got 30% annual returns for decades.
He worked for George Soros and has been an incredibly successful macro investor.
I like to share perspectives with you from sophisticated investors who understand what time it is.
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[Not the talking heads who just want to hear themselves babble on.]
So, Stanley Druckenmiller said he’s worried about a repeat of 1970’s style inflation.
Meaning, we could be entering a stagflation decade.
He talked about the Fed and said inflation has been stubbornly high and shows its head popping up a little bit.
If you look at 1970s America, what happened was that the Fed would raise rates, inflation would come down, and every time they thought they had inflation under control, the Fed would lower rates and inflation would pop back up.
Fast-forward to 2024…
A lot of folks thought the Fed did not need to lower rates at all, and then lowered them too far, too fast despite a strong economy.
Why on earth would you do that?
And now that we’ve seen inflation pop back up in the most recent reports really lends credence to that kind of thought.
Very concerning.
The question is, what would make inflation really sticky?
Trump, to his great credit, tells you what he’s going to do…
It is what it is, he says; he’s going to levy tariffs all over the world which is inflationary.
Remember, if China imports get taxed by another 10 or 20%, your money doesn’t go as far.
That’s like an inflation tax. There’s no doubt about that.
Trump also basically says he’s going to keep running deficits and spend a ton of money to try to boost the economy. That is inflationary.
All of this is very inflationary.
So this really brings us back to the theme I talked about earlier this week – why big investors are on a buyer strike against long-term treasuries.
They’re not paying enough when investors expect the spending here to degrade the value of the dollar every year.
And the international buyer strike starting against long-term treasuries, is very inflationary.
So a lot of things are bubbling up that are real warning signs on my mind as we enter 2025.
So I just want to say, I don’t know if we get into a financial crisis next year or next month or whatever it is…
But I worry the Fed declared victory too soon.
I don’t have conviction like I did in 2021 that inflation’s going up where the money supply was growing and they were just printing all sorts of money…
But I do have conviction they haven’t snuffed out this inflation.
The proof is in the data.
This is why the Fed’s kind of pulling back.
I remember studying the ‘70s.
I was a little kid then so I didn’t know what was going on, but inflation was like a cancer that needed chemotherapy…
The minute you removed the chemo, the higher interest rates would pop back up.
And with what looks like very inflationary policies, the bond market and the gold market are telling us Druckenmiller is very likely right.
In periods of high inflation, finding yield becomes more important than ever.
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Here’s how it works.
That’s all I have today.
Have a great weekend.
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