HIGHLIGHTS: Stan Druckenmiller

0:00Hi, everybody. Tune in to this short version of the podcast, which we do every Friday. For the long version, tune in on Wednesdays. Hi, everybody. I'm Nikolaj Tangen, the CEO of the Norwegian Sovereign Wealth Fund. And today I'm here with Stan Druckenmiller, a proper legend in the investment world. Stan, what a pleasure to be here. Happy to see you, Nikolaj. Now, what are the most important data you are looking at these days? Currently? Yeah. Interestingly enough, I'm known as a macro investor, but I do our macro from the bottom up. So we're listening primarily to companies, and we're not seeing any material signs of weakness other than maybe in the housing market, but that's from a very elevated price level.

0:51So we're not seeing bottom-up information indicating to us that there's an economic problem anytime in the next three to six months. I would also say I'm revealing now that I'm more of a market animal than an economist, that we look at financial conditions. They've been very, very loose. I mean, they're as looser and looser than they were when the Fed actually started tightening. They've tightened considerably in the last four or five weeks, ironically, ever since the Fed cut, because the dollar has rallied. And obviously, interest rates have gone up, but they're still quite above normal. So that's pretty much the data we're looking at.

1:43How big a problem is the budget deficit? As a practitioner, it's something I can't be obsessed with on a three to six month basis. As an American, it's something I'm really obsessed with because debt to GDP can't go up forever. go up forever. And to me, we have a reckoning, but I don't know how to time when that's going to take place. I will say that because the reserve currency, we've been permitted to engage in behavior that say the Brits couldn't have behaved in. There's a new term I have, getting Liz trust. We haven't been Liz trust because we are the reserve currency, even though if you look at everything we're doing, it's much more radical than the Brits were doing.

2:31What's that old saying, how do you go bankrupt slowly and then suddenly? Running deficits with full employment, basically it's 7 % of GDP, is a recipe that can't last forever. One of the reasons we haven't paid for it is in COVID, the entire private sector, 80 % of individuals refinance their mortgages. So the average mortgage rate is still under 4%, even though at the margin it got to 8%. Corporations turned out their debt. That stuff rolls over in 2025 and 2026. If we're going to have a problem, it's probably more like late 2025, early 2026, but you just don't know. How do you think the tech sector will develop?

3:20What kind of science are you seeing there? The AI boom is going unabated, Nikolai. What is it that you look at?

3:33Honestly, I've got young, really good analysts here. Yeah, a lot of people have a lot of young analysts. Who are on top of things and they started. We noticed about three or four years ago that the kids that go to Stanford and MIT, the engineers were shifting from crypto to AI. That was the first sign. Then my young partners started talking more and more about AI. I asked them how to play it. They mentioned a company called NVIDIA, which I thought was a gaming company. I hadn't done work on it in a long time. I bought a pretty good chunk of it. And then like a month later, ChetGPT happened. It was just total luck.

4:22I had no idea ChetGPT. But the AI drum around here was big enough. And the stock was down, I think, from 400 to 150 or something. So that's how I got started in it. And then once you get started, once we invest in something like that, But then we really start to dig deeper and then there was a whole chain of things. When we last met, you mentioned the concept of buy first, analyze later. Tell me about that. Yeah, Soros used to call it invest and then investigate. I think I just gave a classic example. I didn't know that much about NVIDIA. I just knew that AI and I had some people here tell me how to play it.

5:05So we bought NVIDIA, and then we were in the process of doing a lot more work, and then ChatGPT happened. But I've always had the view that markets are smart, they're fast, and they're getting much more so with all the communication and the technology we have today. and that if I hear a concept and I like it, if I wait and spend two or three months analyzing it, I may miss a big part of the move and then psychologically be paralyzed. It's hard to buy a stock you're looking at at 100. It's 160 even if it's going to 400. Somehow your head is screwed up and you're waiting for the pullback. So we will buy something, a meaningful position, but not earth-shaking, and then really do the work.

5:55And if I think we made a mistake, I'll sell it. And if I don't think we made a mistake, we'll add to it if we have to. Yeah. No, I happen to have worked exactly the same way in my life. It really focuses in your work and your efforts and your thinking. But have you always believed in your own pattern recognition? Yes. When I started in the business, I got promoted too early. So before I had really learned the nuts and bolts of the analysis to the extent that I should have,

6:35I was promoted to a leadership position. And I had to rely a lot on charts. And I had to rely a lot on intuition. What I learned from Soros is when you have conviction, you should bet really big. I know your listeners have probably heard it before, but probably the best illustration is the pound. Yeah. So what happened? So let's go back. So you are in the office. What's happening in the UK? The day, I believe, was September 15th. Not that I would remember. I read the Financial Times and the head of the Bundesbank, now I'm sure I'm age, but I'm pretty sure it was Tietmeier, has written an editorial in the Financial Times.

7:31Basically, in more proper language, but he's basically saying that the Deutschmark and the pound should no longer be linked. like so I decide to take Duquesne and the quantum fund to 100 % long the Deutzmark short the pound because it's still a half a percent unbelievably so now you're going to hear vintage Soros so he happens to be in New York at the time which he wasn't always I go into his office. And I explained to him why I'm going to 100%. And he had a rather large personal account. That's how we kept each other out of each other's hair. He traded that. And, you know, it was 90, 95 % overlap.

8:24Told him why I was doing this. And he had this unpleasant puzzled look on his face when I'm telling him my thesis, that this one economy is booming and they need higher rates. This other economy is falling apart. They need lower rates. These two currencies shouldn't be linked. And I'm thinking, what does he not understand about this? Because this guy pretty much understood everything. And he says, look, this is a one-way bet. They come along very, very rarely. It's ridiculous doing 100%. We should put 200 % of the fund in this trade. So there you have it. Now, you took a sabbatical in 2000. Yeah.

9:11What was the reason behind that? It's a painful but really fun story. The fund is down like 17%. And Duquesne is down 17%. And I'm just exhausted. I've been running this high profile fund for 12 years. And so I sell everything out, everything, of Duquesne, send my investors a letter and say, I'm going on a sabbatical. I don't know whether I'm coming back or not. You can take all your money out. But if you take your money out, if I decide to come back, I can't guarantee I'll let you back in. I think I had like 200 clients. One of them pulled their money. I remember who it was, but they'll remain anonymous.