Trade ideas from investing legend Stan Druckenmiller
Feb 18, 2021
Stan Druckenmiller gained his star-manager status in the late 90's, when he was the lead portfolio manager for George Soros' Quantum fund. Since then, he's never had a losing year. In this interview with Goldman Sachs, he discusses his current outlook on the market and his investing approach.
In this post, we're going to share our key takeaways from the first part of the video as well as give you practical tips on how you can use that knowledge in your applications and interviews.
Watch the video here.
😎 3 Interesting Bites
- Stan comparing the current macro environment to the “wildest cocktail I’ve ever seen” sounds pretty scary. He explains what made 2020 truly unique (and bizarre):
Huge monetary and fiscal Stimulus + pent-up demand = inflation down the line. He implemented three trades to profit from higher inflation:
- The 2020 recession was 5x the average in size since WWII but it occurred in 25% of the time.
- We saw the largest increase in personal income in 20 years despite millions of people losing their jobs.
- The US deficit increased more in 3 months than in the previous 5 recessions combined.
- In 6 weeks, the Fed bought more treasuries than it did in10 years.
- Corporate borrowing went up despite a higher risk of defaults and a challenging outlook.
Growth stocks could come under pressure (more than other stocks) over the next 5 years given the potential for rates to rise precipitously combined with tech stocks' high valuations. He's however not too worried about mega-cap tech stocks such as Microsoft, Google and Amazon.
- Short long-dated treasuries
- Long commodities
- Short USD
🤓 3 Things I’ve Learned
- Inflation is bad for long-dated treasuries but is good for commodities (can you explain why?)
- Commodities would benefit from rates remaining low (and hence could serve as a good hedge to the short treasury trade not working)
- The Fed has been much more aggressive with monetary easing than Asia. Stan uses M2/GDP as a measure of liquidity.
🎯 3 Ways To Use That Knowledge
- One new great resource you can follow! Subscribe to “Talks at GS Presents: Insights from Great Investors” to get more insights like this.
- You can discuss those 3 trade ideas in your upcoming interview:
Share this video on LinkedIn with a summary explaining your take on it. Recruiters will notice!
- Short long-dated treasuries and long commodities to benefit from inflation surprises.
- Short growth stocks (absolute or vs the S&P 500) to profit from rates rising by more than the market expects.
- Long Asia FX vs USD to profit from the difference in monetary responses between the US and Asia.