Longtime hedge fund manager Stanley Druckenmiller told CNBC on Monday the market’s strong performance over the last three weeks has “humbled” him and that he underestimated the power of the Federal Reserve.
“I had long-term concerns for the last few years that because of easy money, too much debt was being built up in the corporate sector,” Druckenmiller said on “Squawk Box.” “When Covid hit, I was pretty much of the view that there was a good chance that the credit bubble had finally burst and the unwinding of that leverage would take years.”
That concern prevented the investor from capitalizing on the market’s robust rebound since the March 23 low: Druckenmiller said he has returned just 3% during the market’s 40% rally since the S&P 500’s springtime bottom.
“Well I’ve been humbled many times in my career, and I’m sure I’ll be many times in the future. And the last three weeks certainly fits that category,” he said.
“I had long-term concerns for the last few years that because of easy money, too much debt was being built up in the corporate sector,” Druckenmiller, the chairman and CEO of the Duquesne Family Office, added on Monday.
He said worries over the corporate debt bubble was what led him to tell the Economic Club of New York in mid-May that the stock market was overvalued.
“The risk-reward for equity is maybe as bad as I’ve seen it in my career,” Druckemiller said on May 12. “The wild card here is the Fed can always step up their (asset) purchases.”
The S&P 500 is up more than 11% since his comments in May, while the Nasdaq Composite became the first of the three major indexes to climb back to an all-time high last week.
But Druckenmiller said his thinking had changed meaningfully since his speech to the economic club.
“I would say since that time, a couple things have happened technically. I would also say I underestimated how many red lines, and how far, the Fed would go,” he said.
That Fed stimulus, combined with investor excitement about the gradual reopening of U.S. business, is leading to broad outperformance among those stocks hit the hardest in March, he said. He added that the technical momentum the market has right now, what he called “breadth thrust,” could carry equities even higher.
“What is clearly happening is the excitement of reopening is allowing a lot of these companies that have been casualties of Covid to come back and come back in force. With a combination of the Fed money and, in particular, a vaccine where the news has been very, very good,” Druckenmiller said.
Druckenmiller led Soros Fund Management in the early 1990s and orchestrated a series of trades that capitalized off the British pound sinking and yielded a profit of about $1 billion. His performance while running Duquense Capital, his now-closed hedge, returned an average of 30% annually to investors.
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