Monday, May 9, 2016

Central Banks have no end game - Druckenmiller

I was reading the Sohn Conference notes and Druckenmiller's presentation struck out at me.

some points:
  • in February of 1981, the risk free rate of return, 5 year treasuries, was 15%. Real rates were close to 5%.
  • If the Fed was using an average of Volcker and Greenspan’s response to data as implied by standard Taylor rules, Fed Funds would be close to 3% today.
  • despite the US global outperformance, we currently have the most negative real rates in the G-7.
  • And smoothing growth over a cycle should not be confused with consistently attempting to borrow consumption from the future.
  • As valuations rose since then, R&D and office equipment grew by only $250b, but financial engineering grew $750b, or 3x this! You can only live on your seed corn so long.  
  •  unlike the pre-stimulus period, when it took $1.50 to generate a $1.00 of GDP, it now takes $7
  • Some regard it as a metal, we regard it as a currency and it remains our largest currency allocation.
Druckenmiller: Bankers should be just making loans only.

more Druckenmiller: