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Old Stanley's been hitting the headlines a lot lately. We love Druck. But why does the media always focus on the wrong quotes?

Why should you care what Druck has to say? It's not like he's worth $10 billion or anything. Ah wait, he is.

Well $9.88bn. I rounded up. He's #191 in the Bloomberg Billionaires Index.

And you don't get to be that wealthy unless you know everything, everywhere, all of the time, for a lot of years. Or so we're led to believe...

What Druck says goes, RIGHT?

Well.... That depends. On the soundbites and the source. See, it's all in the eye of the beholder. Everyone sees what they want to see, and hears what they want to hear...

Take his high conviction dollar short position, per a report in the FT a couple of weeks back.

25th April 2023

But that wasn't exactly true. In his own words on May 9th...

"I don't have some massive short dollar position. I may have been a little misinterpreted in an interview I did a week ago, but it is a position that will move the needle at my firm uh, I don't know how long I'm going to stick with it"

Paper Hands Stan hasn't heard of these?

If you have high conviction in a trade, diamond hands it until you die!
~ RektDegen (#7,000,000,099 in Bloomberg's Billionare Index)

OK, dialling back the snark and sarcasm a little, it's relatively rare to hear from guys like Druck in their own words. So when he does an interview like this, it's well worth a listen/watch... ๐Ÿ‘‡

You get to see how everyone cherry picks the bits that make the best story and/or fit their agenda. Most importantly, you get to hear how he actually thinks.

And that's where the value is. Newsflash - This ain't your favourite influencoooor.

My agenda is to be anti-agenda, so here are my cherry-picked agenda-free* snippets

"I've been doing this for forty-five years. I have to make economic forecasts for a living and this is easily the most challenging period to have a CONFIDENT forecast that I've had in my career"

So, NONE of this is high conviction. Almost like you can't believe everything you read... Who knew?

On gold and silver

"We own gold and silver right now. They historically have not done well in hard landings but given that it looks to me like the monetary and the fiscal authorities are kind of at the end of their rope and given the fact that other countries have decided, particularly autocracies not to hold their reserves in dollars I'm betting for the time being against the history of the performance of gold and hard landings..."
"Could be wrong... Don't go out and buy gold I could change my mind in a week or two folks"

Change his mind? What an absurb idea. Still, I'm sure he'll come on TV and tell everyone as soon as he does.

Or maybe he won't...

There are going to be unbelievable opportunities

Serious now. This is something a few of the old guard are saying and preparing for. Howard Marks' Oaktree is another one...

Howard Marks Is At It Again
Back in 2007BL (Before Lehman) Oaktree was raising capital to buy distressed assets. Now theyโ€™re stacking cash for leveraged buyoutsโ€ฆ

So, what's the most important thing about these unbelievable opportunities?

"I don't want to miss those opportunities by blowing my money now and having some 20 or 30 percent loss where my head is all screwed up when those opportunities present themselves."
"So I'm happy with a portfolio right now that is not net short or not net long and only about 60 percent gross because funny things happen when you need chaos you know..."

Basically, when SHTF, nobody knows what's going to happen. These guys are preparing for the right opportunities. Keeping powder dry, no FOMO and ready to deploy...

One little nugget that nobody seems to have picked up on is what Druck said about the US 10 year, traditionally the safest of all safe havens.

The playbook I've always used if I expected a bad economic outcome is to own treasuries. Well with the 10-year yielding 3.5% or wherever it is today and fed funds at 5% that's not exactly a fat pitch. What if you're wrong?
And what if what if the Fed panics - and you get an inflationary outcome? So that asset class is sort of off the table.

While the media focuses HEAVILY on his forecasts and what he thinks of Nvidia & AI, he's casually dropping wisdom like this.

See, if the Fed drops the ball here (or a combo of the Fed & the US treasury) by easing policy too soon, inflation expectations can get baked into the cake.

Which could mean no rate cuts. Maybe even, more hikes... None of this is particularly a forecast. It's just not a fat pitch at 3.5% while inflation could still head higher again. Especially when you can sit in cash at around 5% for the time being.

Imagine the Fed ends up cutting rates or stops QT to deal with the regional banks, the economy picks up a bit.... And then 'something happens' that pushes energy prices higher...

Who wants to be locked in at 3.5% for 10 years if we re-run the '70's?

Again, not saying that's the likeliest outcome. But plenty of unlikely things happen all the time. That's the nature of probability.

In fact, Druck's dollar short is based on the same logic. That the Fed will bottle it.

โ€œThe Fed has shown some mettle over the last year but historically I would not say [Federal Reserve chair] Jay Powell is a profile in courage,โ€

It's not hard to envisage the central bank coming under huge pressure from government to ease as soon as the first negative jobs report prints. Especially if inflation is within the 3-4% range.

The 10 year's an unappealing bet either way. So he just... leaves it alone.

One more on the appeal of Nvidia ๐Ÿ‘‡

"My firm has only been able to participate in AI by owning Nvidia and Microsoft and it's not even clear to me and this is kind of out there but it's not even clear to me if we had a really bad recession that Nvidia would even go down"

He gets that it's crazy, but if the economy starts to roll and everyone thinks that AI is the next revolution, who's going to sell their Nvidia shares? Wouldn't people be tempted to sell other companies first? Maybe even buy more in the one 'guaranteed' growth sector...?

Not because they're cheap, but because AI is the next big thing...

"It's kind of a stupid statement given the multiple on it, but if they bought staples historically in recessions, why wouldn't they buy a company that's obviously going to grow very rapidly?"

It's a bet on continued irrationality. I'd still put it in the same basket as the 10 year trade though (could go either way).

We've written before about the appeal of these 'authority figures' before ๐Ÿ‘‡

๐Ÿ’ต Being Famous Means I Know Better Than You
Munger Says. Buffett Says. Dalio Says. Ackman Says. Druckenmiller Says. Random 250k Follower Guy Says.... Should you care what the Best And Brightestโ„ข have to say?

With someone like Druck, it's less about what he says/forecasts, and much more the way he thinks about things...

Especially the complete absence of fear of being wrong. Throughout the interview, being wrong is freely discussed as something inevitable.

TL;DR This interview is a great demonstration of strong opinions, weakly held, & probabilistic thinking. And right now, even those strong opinions are pretty low conviction...