Legendary investor Stanley Druckenmiller just issued a warning on the state of the US economy.
In a new interview at the Bloomberg Invest New York conference, Druckenmiller, A.K.A “The Druck” says that the economy is still trying to adjust to a more restrictive climate after more than a decade of low interest rates and essentially free money.
The markets veteran says that Dogecoin (DOGE), which had more than an $80 billion market cap during its rally of 2021, is a perfect example of the irrational behavior of traders during an asset bubble.
“There’s a five hundred year history of asset bubbles, [it’s] well documented, and well, the US has some issues with [it] at the present time. Basically, it documents – and I had already known this about the last one hundred years but it’s going out five hundred years – every time you’ve had a significant asset bubble, economic trouble lay ahead. When you had 11 years of free money, people do stupid things. All you have to do is look [at how] someone paid $80 billion for Dogecoin, which was invented as a joke. I mean, that can only happen in the world of free money…”
With the credit cycle now well into a phase of contraction, Druckenmiller says the pricier cost of capital is starting to manifest with bankruptcies and weakness in the banking system. He predicts “more shoes to drop” and hints at further corrections in risk assets.
“But the fact that this was arguably the most disruptive economic period we’ve had since the late 1800s and there were no bankruptcies, apparently they’ve started in the last few weeks, tells me there’s a lot of stuff under the hood. When you go from this kind of environment, the biggest, broadest asset bubble ever, and then you jack rates up 500 basis points in a year, I think the probabilities would suggest that Silicon Valley Bank, Bed, Bath and Beyond, they’re probably the tip of the iceberg. Nothing’s guaranteed. I’ve been wrong a lot, I’ve been right a few times. But our central case is there’s more shoes to drop, particularly in addition to the asset markets economically.”
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