Stanley Druckenmiller, chief executive of Duquesne Family Office, said on Wednesday he is bearish on the U.S. stock market, given the negative impact of the U.S. Federal Reserve and China’s monetary policies on global growth.
Druckenmiller, who acquired expertise in making global bets on interest rates and currencies while working at Soros Fund Management, said at the Sohn Investment Conference in New York that declining global growth suggests that stocks are just starting to bear the brunt of Fed and Chinese policy.
“The myopic policy makers have no endgame. They stumble from one short-term fiscal or monetary stimulus to the next, despite overwhelming evidence that they only produce an ephemeral ‘sugar high’ and grow unproductive debt that impedes long-term growth,” Druckenmiller said. “The chickens are now coming home to roost.”
Druckenmiller said the bull market in U.S. equities is “exhausting itself” and that the Fed’s easy money policies have led to an increase in leverage and a tendency on the part of businesses to move forward with share buybacks and mergers instead of capital expenditures.
Druckenmiller, who has criticized the Fed’s easy money policies at past Sohn investment conferences, said the Fed’s policy of keeping interest rates low and focusing on near-term risks was “raising the odds of the economic tail risk they are trying to avoid.”
The Fed kept interest rates unchanged last week but signaled confidence in the U.S. economic outlook, leaving the door open to a increase in June. Fed policymakers currently project two rate hikes in 2016, compared with the four increases they expected in December.
The U.S. central bank raised interest rates for the first time in nearly a decade last December. The Fed had kept interest rates near zero since December 2008 to stimulate the economy following the financial crisis.
Druckenmiller also took aim at China’s stimulus policies, saying they had led to an “extremely toxic cocktail” that would increase the country’s already high debt burdens and hurt the global economy.
“This lack of investment and a slowing of the Chinese economy will remove a major cylinder from the engine of world growth,” Druckenmiller said.
A source familiar with Druckenmiller’s thinking said the investor was long gold and short U.S. equities, although he merely hinted at his bullish stance on the metal during his presentation at the conference.
Druckenmiller closed down his Duquesne Capital Management in 2010.