Macroeconomic concerns are piling up, creating heightened uncertainty for investors.
“The debt ceiling debate is really frustrating,” Stanley Druckenmiller, chairman and CEO of the Duquesne family office, said at the Sohn Investment Conference 2023 held virtually Tuesday. “I hope we don’t have a technical stumble,” he said, which could lead to a “market event.”
Druckenmiller said the current macro environment, which is characterized by high inflation in the US even after the Fed’s aggressive tightening of monetary policy, makes it difficult for him to have confidence in his own forecasts. But after a “massive” asset bubble, he warned that a hard landing for the US economy could include a drop of at least 20% in corporate earnings, a rise in the unemployment rate to more than 5% from 3.4% now, and an increase in bankruptcies.
In recent weeks, a few regional banks have failed in the wake of the Fed’s rapid pace of raising interest rates over the past year in its ongoing battle with soaring inflation.
“I don’t expect anything worse than 2008,” Druckenmiller said, but noted that it would be “naive” not to be at least open to the possibility of something happening affecting the global financial crisis.
is reading: What happens to the dollar if the US debt ceiling is not raised?
While the United States has the “privilege” of making the dollar the world’s reserve currency, he said it also risks allowing the government to run “extremely short-sighted policies.” He warned that reckless fiscal and monetary policies could amount to “digging a bigger and bigger hole”.
“When it’s the reserve currency, you can continue to dig your own grave,” he said, as “we don’t have any checking on us.”
Druckenmiller expressed concern about the government’s mounting debt and questioned whether policymakers would allow “creative destruction” in a hard landing scenario rather than respond with more monetary stimulus.
is reading: How debt ceiling concerns might play out in the risky corporate bond market, according to CreditSights
A hard landing would bring investment opportunities.
Druckenmiller said that artificial intelligence may be one of these areas, and it may have an impact on productivity as much as the PC, noting that Nvidia Corp.
NVDA
is one of the ways his company shares exposure to artificial intelligence.
In a separate session at the Sohn Investment Conference, Karen Carniol Tambor, chief investment officer at Bridgewater Associates, said it’s still not known whether AI can be used to achieve investment advantage, but it’s something the world’s largest hedge fund company is considering.
Speaking to the general state of the capital markets, she said, “The world is changing very quickly and capital markets tend to be slow to adapt.” In one of the most difficult times to be an investor in many years, she said it might be time to think about asset diversification differently.
In her view, Japan represents an “undervalued” investment opportunity in developed markets. It also rated Emerging Markets and Gold
GC00
It was also underrated.
“I think there’s still a long way to go,” she said of the precious metal.
Meanwhile, the US stock market ended lower on Tuesday, with the Dow Jones Industrial Average
DJIA
The S&P 500 fell 0.2%
SPX
Down 0.5%, the Nasdaq Composite Index
COMP
down 0.6%, according to FactSet data.
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