Druckenmiller on CNBC

[EliG]

CNBC Transcript: Stanley Druckenmiller Speaks With CNBC's Kelly Evans Today

https://www.cnbc.com/2017/12/12/cnbc-exclusive-cnbc-transcript-stanley-druckenmiller-speaks-with-cnbcs-kelly-evans-today.html

[JayGatsby]

Here's the WSJ article he refers to: https://www.wsj.com/articles/u-s-shoppers-wield-smartphones-to-keep-a-lid-on-consumer-prices-1513036486

Glad he called it out. The dogma of the article really makes no logical sense (that I can think of), yet the article never questions whether the underlying criteria is actually what's flawed.

[thowed]

Many thanks for this - I always find he has something interesting to say.

He's on pretty fiery form there, and it all seems pretty reasonable (unless you're a hedge fund manager...).

[Liberty]

Here's the 30-min video:

https://www.cnbc.com/video/2017/12/13/watch-cnbcs-full-interview-with-legendary-investor-stanley-druckenmiller.html

[VersaillesinNY]

Thanks for the links. Stan Druckenmiller is always interesting. I feel that Kelly Evans could have better prepared the questions. She even thought that Druckenmiller supported the Donald during the Presidential campaign while in fact Stan had publicly supported John Kasich on cnbc.

[Viking]

Interesting comments. Thanks for posting the link to the video.

Some of my takeaways (feel free to correct any errors as I watched the video earlier today):
1.) going back 700 years inflation averaged 1%; inflation was much higher in the 70’s but perhaps that is the outlier. Perhaps current rate of inflation is perfectly normal.
2.) current phase of innovation (greatest in over a century) is likely what is resulting in low inflation and this is not a bad thing.
3.) if current low rate of inflation is normal Fed policy of low rates and quantitative easing is wrong. He feels fed should normalize rates/Fed balance sheet as soon as possible.
4.) by June of 2018 we should start to see some impact of all the central banks reversing quantitative easing.
3.) current low global rates and global QE is creating bubles in all financial markets. Free money will tend to do that.

[rb]

Interesting comments. Thanks for posting the link to the video.

Some of my takeaways (feel free to correct any errors as I watched the video earlier today):
1.) going back 700 years inflation averaged 1%; inflation was much higher in the 70’s but perhaps that is the outlier. Perhaps current rate of inflation is perfectly normal.
2.) current phase of innovation (greatest in over a century) is likely what is resulting in low inflation and this is not a bad thing.
3.) if current low rate of inflation is normal Fed policy of low rates and quantitative easing is wrong. He feels fed should normalize rates/Fed balance sheet as soon as possible.
4.) by June of 2018 we should start to see some impact of all the central banks reversing quantitative easing.
3.) current low global rates and global QE is creating bubles in all financial markets. Free money will tend to do that.

Some thoughts:

1. There weren't great statistics being kept half a millennia ago. So I wouldn't put much stock in the inflation rate of 1682.

2. Not really the greatest phase of innovation in over a century. Introduction of AC motors, etc was way more significant. Though we can argue about the timing. Anyway if there's so much innovation why are productivity gains so small? If innovation is what's keeping inflation low that's because it's causing a large expansion of aggregate supply. If that's true we should see big productivity gains.

3. This actually makes no sense. Why should Fed policy be wrong? Just because he likes high rates? If the rates are artificially low why isn't there a shortage of credit?

[Cigarbutt]

Thought experiment:
For reference only look at page 6 of the pdf document:
http://www.hydroquebec.com/publications/en/docs/comparaison-electricity-prices/comparison-electricity-prices-2017.pdf

Let's say the Federal Reserve of Energy becomes a critical input for the supply of energy in North America and, in order to stimulate aggregate demand, decides to fix the price of electricity everywhere at 7,07.

What happens to supply?
I submit that there would be no shortage.

What happens to private players in the industry?
I submit that there would be a risk of capital misallocation

What about unintended consequences for ignoring markets signals?
I submit there are a few, including slowing of innovation and waste.

I enjoy the low electricity bills but still, I wish that rates would reflect the true cost.
The above Federal Reserve of Energy scenario would assume that the lunch is free.

[EliG]

A former deputy governor of the Bank of Canada wrote a column arguing that central bankers should

(a) abandon short-term inflation targeting
(b) focus more on avoiding "boom-bust" credit cycles

The Dangerous Delusion of Price Stability
https://www.project-syndicate.org/commentary/central-banks-low-inflation-agenda-by-william-white-2017-12

[Viking]

Rb, I think Druckenmiller’s concerns with interest rates and QE is they are creating bubbles in many asset classes (or at a minimum very inefficient distortions).

The best personal example I have is real estate pricing in Vancouver (clearly a bubble). People are blaming foreign buyers and calling for government help to allow young and low income people to buy which creates very poor public policy. My view is if you want to address housing affordability in Vancouver you need to start by normalizing interest rates (perhaps a 5 year fixed rate of 4 to 5%). Of course this cannot happen as it would crash the housing market and remove the only pillar of growth (for Canada). Crazy low interest rates are possibly creating the mother of all bubbles in many financial assets.

Until the ECB and Japan end QE and get rates normalized the party will continue; all the money they are injecting into the system will be put to use. However, it does look like we are coming to the end of the game (or at least this chapter) possibly in the next 24 months. While it has been fun on the way up, it likely will be very uncomfortable on the way down.