"Soros' comrade" Druckenmiller: Market "animal spirits" return, tariff risks are exaggerated

One of today's greatest traders, "Soros' ally" Stanley Druckenmiller, recently stated in an interview with CNBC that Trump's re-election as President of the United States has reignited market speculation and boosted optimism within companies:

I have been in this business for 49 years, we may be moving from the most unfavorable government for business to the opposite direction. We have had extensive field communications with CEOs and various companies. I think CEOs feel both relieved and extremely excited. So we believe in animal spirits.

As a result of Trump's victory, the S&P 500 index surged nearly 6% in November, with an increase of over 23% for the index in 2024. The promised tax cuts and deregulation by Trump significantly boosted risk assets, especially bank stocks, energy stocks, and digital currencies. On Monday, Trump was sworn in as President of the United States, the U.S. stock market was closed, and U.S. stock futures rose across the board, with S&P 500 futures up 0.36%.

Druckenmiller stated that the U.S. economy looks very, very strong for at least the next six months. The U.S. economy is "very interesting." Druckenmiller expects U.S. inflation will not decrease.

Although Druckenmiller is optimistic about the U.S. short-term economy, he remains cautious about the U.S. stock market due to rising U.S. Treasury yields:

In terms of the market, I think it's complicated. The economy is strong, and bond yields are rising, which makes me not have a very strong view on the market. The earnings yield of U.S. stocks relative to bond yields is the least attractive in 20 years.

Druckenmiller revealed that he continues to hold short positions in U.S. Treasuries, betting that bond prices will fall and bond yields will rise. However, he hinted that shorting bonds may be nearing its end, "likely entering the seventh inning." (Note from Wall Street: "the seventh inning" is a metaphor from baseball, where a game typically consists of nine innings.)

The 71-year-old Druckenmiller stated that with the rise of innovation, he will focus on individual stocks rather than the overall market. He is optimistic about companies that can reduce costs and improve productivity through artificial intelligence. After selling Nvidia and Microsoft, he did not disclose which AI stocks he is betting on.

Regarding AI, Druckenmiller also mentioned that the U.S. will have 2-3 years of AI infrastructure development ahead. He expects to have AGI by 2035, and the future returns are enormous. However, valuations are very high. Druckenmiller emphasized the limitless potential of AI applications, rather than those who build it.

In response to market concerns that Trump's tariffs would undermine the market rebound and push up inflation, Druckenmiller believes that the risks are exaggerated, and the revenue generated from tariffs can alleviate the urgent fiscal issues in the U.S.:

The U.S. has fiscal problems, and the fiscal situation is terrible. The deficit is a huge issue, and the U.S. is a mess. Politicians are unwilling to do what is necessary for the deficit; we need the bond market to send a signal. Interest expenses are an elephant in the room

The United States needs revenue. The U.S. will need a consumption tax (tariff) or income tax.

Although The Wall Street Journal is optimistic, tariffs are still expected to be implemented, which should put upward pressure on the dollar, alongside the "animal spirits." However, I believe the dollar rebound is currently in the seventh inning.

The current risk is retaliation. As long as we stay within the 10% range, I think the risk is exaggerated relative to the return.

Druckenmiller mentioned that the U.S. Treasury Secretary nominee, Becerra, is "very capable" and is in a favorable position as he understands the U.S. fiscal situation. Nevertheless, he does not have full control, so it is uncertain how things will develop.

Druckenmiller also pointed out that private savings in the U.S. are too low.

Despite his "seventh inning" comments on the movements of some assets, he also stated that there is still a lot of money to be made in the final innings.

Druckenmiller once managed Soros's Quantum Fund and gained fame for helping to bet $10 billion against the British pound in 1992. Later, he managed $12 billion in assets as the president of Duquesne Capital Management. Public records show that Duquesne's average return over thirty years has reached 30%, higher than Berkshire Hathaway under Warren Buffett