That same day, one of Wall Street’s most respected minds, Stanley Druckenmiller, argued that the pain would not be temporary — and that stocks face a full decade of sideways trading through a tectonic shift of the global economy.
“There’s a high probability in my mind that the market, at best, is going to be flat for 10 years, like this ’66 to ’82 time period,” he said in an interview with Alex Karp, CEO of Software and AI firm Palantir.
Druckenmiller said that with inflation rising, central banks raising rates, globalization taking hold, and the war raging in Ukraine, he believes the prospects for a global recession are now the highest in decades.
And given Druckenmiller’s track record, investors would be wise to heed his warnings.
According to Yahoo Finance, the veteran investor founded his hedge fund, Duquesne Capital, in 1981, and regularly outperformed most of his peers on Wall Street over the coming decades, generating an annual average return of 30% from 1986 to 2010. found.
But Druckenmiller really made a name for himself when he led George Soros’ bet against the British pound in 1992, giving the billionaire a cool $1.5 billion a month.
Druckenmiller eventually spun off his hedge fund in 2010 and converted it into a family office—a type of private firm set up by wealthy families to manage their money—as many hedge funders typically do informally. Upon retirement. But the views of the major investor are still widely followed on Wall Street.
Druckenmiller’s argument as to why the stock market is experiencing a decade of “flat” trading is based on the idea that central banks’ policies are shifting from a supportive to a restrictive stance around the world.
The change is a result of globalization that has characterized the last few decades between the war in Ukraine and US-China tensions. Druckenmiller points out that globalization has a deflationary effect because it increases worker productivity and accelerates technological progress, but that is now gone.
“When I look at the bull market that we had in financial assets that actually started in 1982… all the factors that have not only stopped, they have reversed,” he said, highlighting the current de-globalization trends. Such as increased government spending since the 1980s and a move toward greater regulation as well as the rift between the US and China.
Druckenmiller further described how central banks responded to the deflation caused by globalization since the 1980s – and especially after the great financial crisis of 2008 – with destabilizing policies that now have to be reworked.
“The deflation response after the global financial crisis was zero rate, and a lot of money printing, quantitative easing. It created an asset bubble in everything,” he said.
Central bank officials around the world are now moving away from near-zero interest rates and quantitative easing—the policy of buying mortgage-backed securities and government bonds in hopes of lending and investments that have strengthened financial assets over the past few decades. ,
“They are like improvised smokers,” Druckenmiller said. “They’ve gone from printing a bunch of money, like driving a Porsche at 200 mph, to not just getting a foot off the gas, but just braking.”
To his point, the US Federal Reserve has raised rates four times this year to tackle inflation, and it is not the only central bank attempting to bring consumer prices down with tighter monetary policy. From the UK to Australia, central bankers around the world are moving towards a more conservative approach and raising interest rates.
While that means financial assets, including stocks, will underperform over the next decade in Druckenmiller’s view, there is some positive news.
“The good thing is that there were companies that did very well in that environment,” Druckenmiller said, referring to the flat trading of the stock market seen between ’66 and ’82. “When Apple Computer was founded, Home Depot was founded.”
Druckenmiller also offered a warning to investors when it came to his pessimistic outlook, saying that this is the most difficult time in history to make economic forecasts and that he has a history of “bearish bias” that he has to deal with throughout his work. had to work for career.
“I like darkness,” he said.
This story was originally featured on Fortune.com