The Tweet that Piled a Thousand Treasuries

Yang, Odell and Kostner Articles

In a tweet that piled a thousand treasuries, billionaire investor [& onetime protégé of George Soros] Stan Druckenmiller revealed that he cashed out from his investments and shifted into treasuries - just about the same time as when Trump tweeted 140 characters that ignited what is now a trade war with China.

Bloomberg quoted Druckenmiller as saying that he sees the Fed cutting rates to zero in the next 18 months, and in a defensive move to protect the value of his assets – slowly piled into US Treasuries just when the US-China trade war rhetoric was further escalating.

“When the Trump tweet went out, I went from 93% invested to net flat, and bought a bunch of Treasuries,” Druckenmiller confided, referring to Trump’s tweet of May 5 that threatened a 25% increase of tariffs on China. One may think that Druckenmiller's move reflects that the opportunity lies in Treasuries. However, on the contrary, his shift to fixed income instruments is a defensive play to steer clear from an environment that could be about to - implode.

This is not the first time Druckenmiller warned about ‘something that is not right’ about the US economy. In December 2018, the legendary investor also had ominous words about the market just when the Dow and the S&P posted significant gains for that year - in what market watchers observe as an extended bull run. He later quipped that trading conditions for 2019 would even be more challenging as central banks will withdraw their stimulus packages. He then assessed stock markets would perform poorly and advised everyone to get out of the markets (at their highs) and make that shift into treasuries on the expectation that yields will keep dropping.

“If you look at the indicators I have historically used in my business, they’re not in the red, but they are definitely amber, and they are setting off warning signs,” Druckenmiller confided in an interview to Bloomberg last Dec 2018. Fast forward five months, he has sold his entire holding as of May 2019 and shifted into Treasuries. This time he is reckoning with the markets that some major shift is just about anytime soon.

It's been well recognized that the market’s continued ascent was in truth propelled by cheap money injected by the Fed through quantitative easing measures [that while now in abeyance for 18 months] could well be reignited. The fed will use anything and everything. The Fed withdrew their stimulus packages 18 months ago, and this could now spell trouble for the financial markets -which Druckenmiller fears will happen in the next 18 months. Treasuries are his best bet should this kind of scenario unfold.

Druckenmiller, who used to be the chief strategist of George Soros is now worth US$5.1 Billion - is also very vocal about his views on politics and the future of Trump’s presidency. He has as well expressed his opinion many times before that Trump has more than damaged an already fragile US economy, and does not see him getting re-elected in 2020. However, he then admits he has been wrong-footed by Trump so many times and has a suspicion that his electoral base may approve of Trumps hard policy choices about trade and still elect him before his policies impact the USA jobs market.

On Gold, he remains reasonably bullish, less so on Cryptocurrencies which he admits he does not understand.

This is a very contrarian view from the prevailing mood on Wall Street, and from a respected and well-known investor.

Subliminally and in a nutshell; He sees powerful deflationary forces again coming to stalk the World and a return to Central Bank QE or to quote Draghi, ‘to do whatever it takes.’

We should take note of his words.