Stanley Druckenmiller thinks the world is heading for a debt-fueled disaster
Bob Bryan
BusinessInsider.com
May 4, 2016
Stanley Druckenmiller, head of the Duquesne Capital, thinks that the macro-economy is looking disastrous and there are two sources for the coming problems .
Druckenmiller thinks that leverage is far too high, saying that central banks and China have allowed for these excesses to continue and it’s setting us up for danger.
The obsession with short-term gains is overwhelming the need for long-term reform at the Federal Reserve, he said.
“It’s this kind of myopia that causes reckless behavior at the government and corporate level,” said Druckenmiller.
Druckenmiller highlighted that net cash flow has gone negative while net debt is still climbing at an unprecedented rate. He also said that instead of investing in growth, companies are adding the debt for financial engineering like buybacks and M&A.
The corporate sector is stuck in a “vicious cycle” of chasing earnings and adding debt, he said.
China was the second source of worry. Druckenmiller also argued that the Chinese government has been fueling home building and growth through debt, and that would come back to bite them.
Druckenmiller said that he sees the evidence has shifted his outlook from bullish three years ago to bearish now. “The bull market is exhausting itself,” he said.
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