Macroeconomic concerns are on the rise, adding to the uncertainty for investors.
“The debt-limit debate is really depressing,” Stanley Druckenmiller, chairman and chief executive of the Duquesne Family Office, said Tuesday at the 2023 Sohn Investment Conference virtually. “I hope we don’t have a technical glitch,” he said, which would result in a “market event.”
Druckenmiller said the current macro environment, marked by still high inflation in the US, even after the Federal Reserve aggressively tightened monetary policy, makes it more difficult for him to believe his own forecasts. But after a “massive” asset bubble, he warned that a hard landing for the US economy would involve at least a 20% drop in corporate profits, a rise in the unemployment rate from 3.4% to more than 5%, and an increase in may be involved. in bankruptcy.
In recent weeks, some regional banks have been failing in the face of the Fed’s rapid pace of interest rate hikes over the past year in its ongoing battle with high inflation.
“I’m not predicting anything worse than 2008,” Druckenmiller said, but he suggested that one should at least be open minded to the possibility of some if not the effects of the global financial crisis.
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While the US has the “privilege” of having the dollar as the world’s reserve currency, he said there is also a risk of allowing the government to run “very short-sighted policies”. He warned that reckless fiscal and monetary policies could amount to “digging a bigger and bigger hole”.
“While you are the reserve currency, you can continue to dig your own grave,” he said, “we have no control.”
Druckenmiller expressed concern over the government’s rising debt and questioned whether policymakers would allow “creative destruction” in a hard landing scenario as opposed to responding with more monetary stimulus.
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Hard landing will bring investment opportunities.
Artificial intelligence may be one such area, and it could have as much of an impact on productivity as the personal computer had, Druckenmiller said, noting that Nvidia Corp. NVDA is one way his firm is participating in its exposure to AI.
In a separate session at the Sohn Investment Conference, Karen Carniol-Tambor, co-chief investment officer at Bridgewater Associates, said it’s still unknown whether AI can be used for an investment edge, but it’s something the world is looking for. The largest hedge-fund firm in the U.S. is studying.
Talking on the general condition of capital markets, she said “The world is changing really fast and capital markets have been slow to adapt.” In one of the most difficult times to be an investor in many years, she said it may be time to think differently about asset diversification.
In his view, Japan represents an “underrated” investment opportunity in developed markets. He also undervalued emerging markets and gold GC00.
“I think it has a long way to go,” she said of the precious metal.
Meanwhile, US stock markets ended Tuesday with the Dow Jones Industrial Average DJIA down 0.2%, the S&P 500 SPX down 0.5% and the Nasdaq Composite Comp down 0.6%, according to FactSet data.
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