Bloomberg Television — Interview with Sonali Basak

Summary

In October 2024, after 13F filings disclosed that Duquesne had sold its entire Nvidia position, Druckenmiller sat with Bloomberg's Sonali Basak and did what he has done for forty years when wrong: he said so. "A big mistake," he called the exit, as the stock kept rallying. The interview closes the Nvidia arc that began with the 2023 entry thesis — position built, trimmed, exited, and now audited in public.

Beyond the Nvidia confession, the interview carries his warning on Federal Reserve independence into the U.S. election — the fiscal critique's newest edge: not just the arithmetic of debt service, but the institutional risk that the arithmetic eventually reaches for the central bank itself.

Full Text

Machine transcript (auto-captions / ASR), punctuation lightly normalized; wording as transcribed. Recognition errors possible — see sources.yaml for provenance.

Sonali Basak:

...mistake of being trapped by forward guidance. What's at stake here? Why are you so concerned?

Stanley Druckenmiller:

Thanks chal, it's nice to be here. Um, in 2021, I think the Fed did a great job when we were facing a black hole in Co 2020. Uh, they took some very aggressive actions; one of those actions was forward guidance, where they — to try and settle markets — guided ahead to basically a zero interest trade policy. I think it's for — was frankly for 3 years.

Um, we were all fooled by Co — I was too — when, when it first happened, we're wondering, you know, are we sinking into a black hole? But it was pretty obvious — I'd say a month or two after vaccine confirmation, which was the fall of 20 — that we weren't going into black hole. Unemployment, which I think had been around 14%, started to drop precipitously; the economy came back.

Um, we wrote the article in the spring of 21, because at this point we felt we were like booming, and it was — it was everywhere — in the economy and the companies we talked to, and unemployment rate, everywhere — and the Fed wasn't adjusting. So they were buying, I think, 120 billion a month at Securities — it might have been down to 95 a month by that time period — and rates were still zero. And I think, had they had a clean slate, they would have never been buying bonds to that degree with what was going on in the economy. But they were trapped, in my opinion, by forward guidance.

It's pretty incredible: from — from the point we wrote the article — when it was so obvious that we even wrote about it, um — it was 13 months from when inflation went through 2% to when they finally raised rates. They also bought two trillion in bonds during that period.

Um, so I guess the reason I analogize it — it today — and it — it's quite different: I had a lot of confidence then that they were wrong on inflation; the money supply was growing at 40%, as I said the economy was booming. This one's much more nuanced, however.

Um, just look at the asymmetry here. Back then, you go 13 months with inflation through the target — goes up to 82% — and you still going another — the 3 months — and your keeping rates is zero, and you're buying bonds like crazy. And then you, um — when you finally move, you move 25 basis points, and your rationale is, we need to see the whites of inflation's eyes — and you're saying this when it's three or four or 5%.

Okay, today, um, we're still quite a bit above target — depending on which measure you use, somewhere between two and a half and three and a quar. Uh, the economy — they've come up with this, I guess, theory that monetary policy is restrictive because of real inflation rates. But I don't really go by theory; I'm a market animal, frankly. We' found over the years that markets are better predictors than, uh, professors.

And when I look at — look at the landscape: equities at a record high, gold at a record high, GDP above trend, credit tight, um, bank earnings and forecasts look good, um — we don't see any restriction whatsoever. Crypto going crazy, you name it.

So all of a sudden, the crowd that said they wanted to, uh, see the whites of inflation's eyes — and they wanted to be data dependent, as opposed to forward-looking — are now cutting 50 basis points, not a quarter, which is what they started of — and we're not even to target yet. And this is all on the theory that monetary policy is restrictive.

So what I would say is this: I don't have the conviction I had in 21 — that we wrote that article — that the Fed is going to be wrong. But on a risk reward basis, I just doesn't — I don't think it makes any sense at all to — to lay out the cards they've laid out and commit themselves through forward guidance once again. And what I — what I was trying to say when I was saying, um, it reminds me of 21 is: I just hope, if the data don't go with them — and they certainly haven't since — since they sorted this narrative — they adjust this time, and they're not trapped by the forward guidance the way they were in 21.

Sonali Basak:

Listen — does this mean that you thought 50 basis points was an absolute mistake? And do you think that there is a risk of an inflationary spike in the way we saw in the 1970s?

Stanley Druckenmiller:

Yeah. Do you have the chart we talked about earlier? Let's see if we can pull that up — there's certainly one that investors have been looking at. And while you — so even if we don't have the chart: so in the 1970s, inflation came down from a remarkably similar level to where it was in 21 — I think 21 peaked at 9; I think it was 8 back in the 70s. They came down to three; the Fed was easing, because they — they had the 75 recession. So the Fed started easing, and inflation went right back up to — I think it peaked at a 12% — when vulker came in and smashed it.

I'm not predicting that. But when you're easing into a melt up in financial markets, and we have the fiscal policy we have going forward, it's certainly a risk. And I just — I think it's a mistake not to be taking that risk into account. I don't really understand the rush of 50 basis points. And then I think that markets have priced in a 97% cut, uh, at the next meeting — that's all through fed guidance.

It's funny — my — my friend Jim Grant, who's one of my favorite writers, said they're not really data dependent, they're forward guidance dependent. And that's what they're showing again. And look, he might be right, and I hope he is right. But it's a big risk, because if in fact they're wrong, and inflation takes off because monetary policy is in fact not restrictive and we have fiscal expansion going on, and they have to tighten again, I think it could be a — it could be a nightmare for markets — and maybe even for the independence of the fed. You can't — you can't make multiple mistakes that — that — that — that would have been — but I'm not predicting it. I'm just saying: why did they go 50, and why do they need this forward guidance?

Sonali Basak:

You know, I'm glad you brought up the Fed independence — I wanted your view on this. Are you concerned about the independence in the scenario of a Donald Trump win? In an interview just a day ago with Bloomberg editor-in Chief John melway, he said that the job at the Fed is to show up in the office once a month and say, let's flip a coin. Uh, on the other hand, your longtime colleague Scott bessent has been informally advising Trump and floated the idea of a shadow Fed chair. How compromised is fed independence at juncture?

Stanley Druckenmiller:

Well, I think as Shadow fed and this kind of talk is a horrible idea and irresponsible. However, I think where Trump to be elected, the institution will hold.

Um, I think a bigger threat to the Fed would — would be major, major mistakes by the Fed. I think the Fed is obsessed with soft landings and fine tuning. To me, that's not the real job; the real job is to avoid the kind of problems we had with a great financial crisis — which in my opinion were because the Fed was too easy going into them — create a housing bubble — and then obviously after Co — not the initial actions, but sticking with it for a year and a half, for two years, buying bonds, uh, with the money supply exploding.

To me, um, they've got to stop the fine-tuning and start looking at the picture and committing yourselves now and then — if they stick to for guidance and inflation starts going up again, that could lead to a hard landing, not a soft landing.

Sonali Basak:

Speaking of, uh, the — the future — of course, another big uncertainty ahead, beyond Federal Reserve policies, is the November election. I'm wondering what the druck and Miller Playbook is around this election cycle, and what you think the most likely scenario is, and how you set up for it.

Stanley Druckenmiller:

Well, it's an evolving situation. I — if you would ask me this 12 days ago, I would have said I don't have a clue; it's in a total cup. I still don't have conviction who's going to win on the election. But as I said earlier, I like market indicators — for the economy and for financial restrictiveness — I also like them for elections. I remember how right the market was on Ronald Reagan in 1980, despite what the pundits were saying. And I must say, in the last 12 days, the market — and the inside of the market, um — is very, very convinced Trump is going to win. You can see it in the bank stocks; you can see it in crypto; you can even see it in djt, his social media company. But throughout the whole — I would say the industries that are deregulated — if we had deregulations — will benefit from Trump, or outperform the.

So if you put a gun to my head — and than God there's not one in my head, so this really doesn't matter — I would say that, um, I — I would have to guess Trump is the favorite to win the election now. But who knows what these polls even mean? No one even responds to them anymore. But, um, that's what we're looking at.

I think the — between, let's say, four outcomes: blue sweep, red sweep, uh, Trump with a — with a blue branch of Congress, uh, Harris with a red branch Congress. Um, first of all, I — I think the blue sleep sweep is extremely unlikely, even if Harris wins the presidency. Uh, looking at state-by-state polls, it — it looks like the Republicans are going to win the Senate. Um, were you get a blue sweep — I think just the math of taxes, um, business confidence, lack of an animal spirits, um, no change in the regulation front in investors minds — you could get a — you — you would have a rough time for equities, I would think, for 3 to 6 months. I think this would probably translate in the economy, because equity ownership is 25% of financial assets, at an all-time high — that was 15% just not that long ago. So that's a blue sweep. But the good news or the bad news, depending on how you view life, is I think it's highly unlikely, so that Playbook is probably going to be irrelevant.

Sonali Basak:

So what about a red sweep?

Stanley Druckenmiller:

A red sweep — which I think is probably more likely than a trump presidency with a, um — with a blue Congress, because personally, I think anybody that votes for Trump is probably not going to switch their — change their ballot, um, for a democrat in Congress. A red sweep, I think you get animal spirits in the business community; you get, um — and there might be some sort of, um, uplift relative to where they were in — in terms of the business community — so I think the economy could be potentially stronger for 3 to six months.

Um, my fear would be, because of those reasons — and because I think Bon yields already don't reflect a proper economic outlook — you would probably get a bad response in the fixed income markets, which could then SN out the equity rally. But any of you — we have at Duane family office that — where we're worried about bonds, we're not playing it through the stock market; we're playing it through the bond market. If — if you want to go after the cause rather than the symptoms — are still look like there's stocks and things to do.

I also think, under a red sweep, the Fed — for the reasons I just salicin — and maybe because of past relationships — would be much more hawkish than they would be under Harris Administration. So I think that would all be in our Playbook — and the responses to it. Under a Harris Administration with the Republican Congress: probably not a lot of change from the landscape we currently have in terms of trying to figure out what's going to happen.

Sonali Basak:

I want to remind our viewers, if you're just tuning in right now: I'm standing by with Stanley dra Miller for our Bloomberg television and radio offices — of course, he leads the Duane family office. And you were talking through each scenario here. But what about your personal views here? In a recent conference, you had mentioned that you wouldn't vote for either kamla Harris or Donald Trump. Which concerns you?

Stanley Druckenmiller:

Um — which concerns me more? I haven't — I like, um, Brett Stevens's line in the New York Times: I haven't decided who I'm going to vote against. Um, I can't see my voting self voting for either one of them, so it really doesn't matter who concerns you are — and I certainly will never — would never support either one of them.

I just think, um, they're actually unified on some things, like industrial policy: both of them think, apparently, the government should have a major role in allocating capital, which I find frankly Chell bizarre. When I think back 10 or 15 years — I'm — I'm a — I'm a reader of Tom Freedman — and quite a — quite a good writer — and he was constantly pointing out how the Chinese model was potentially superior to the US model, talking about how nice their airports were and their roads, and how they could target certain industries. Well, my long capitalist suspicions have been confirmed, and China's been, as we all know, a disaster with that model. But somehow both parties — Republican and Democrats — have adopted industrial policy, kind of throwing free market Reagan capitalism to the side.

So policies in terms of that, I find equally bad. I find her policies much worse in terms of anti bigness, anti Business and Regulation. But frankly, I — I grew up in America with a certain model of a President — George Washington, Thomas Jefferson, um, Ronald Reagan was one in my — where there was a certain dignity and behavior in the office. And I don't judge anyone who wants to vote for — for Trump. But for me, um, it's just a red line. So I'll probably write in someone when I go to the polls.

Sonali Basak:

When you think about the policies Donald Trump has put forward — a day ago he said to Bloomberg that tariff is the most beautiful word in the dictionary — he's negated the idea that many economists believe that this could have many punitive impacts on the American consumer. How do you see it?

Stanley Druckenmiller:

Well, I don't like tariffs — I'm a — I just said I'm a free market capitalist. The only thing I'll say about Trump is — is a bit of a blow hard, so I don't know whether he's negotiating, um, with — with, uh, our foreign adves — and frankly, with our foreign partners. Um, I don't think it'll be the end of the world, but I — I am not in favor of tariffs; I don't like them at all. You know, it's interesting, by the way — uh, the Biden Administration kept all his tariffs, so it's not like I'm a fan of their tariff policy either.

Sonali Basak:

What about taxation? At the end of the day, you have been very, very critical for many years about the US debt load, the fiscal situation. And there are analyses that say both candidates would increase the federal debt load — the committee for a responsible federal budget say Trump more than the Harris Administration. At the end of the day, can Congress get away with extending the tax cuts from the Trump era, or is there another way to really close the gap?

Stanley Druckenmiller:

Look, in — in my world, the less taxes the better. But we live in a world that, I hope, still includes compromise. And if there's some sort of agreement for spending cuts, I could definitely tolerate tax increases of balance them.

I will say one thing: I don't — I don't really like the media narrative which compares fiscal irresponsibility with tax cuts and fiscal irresponsibility with spending. And again, you're right, I'm a fiscal hawk. I'm a lot worried about — more worried about this and the effect four or five years out than whether we have a soft landing and our economy grows at 1.2 or two. This is big stuff we're talking about.

But tax cuts are accompanied by an addition to the capital stock; spending is a shrinking in the capital stock replaced by government spending. So of the two, um, the two sends, tax cuts are leas. But personally, if I was in government, you can't just do tax cuts if you don't get the spending cuts. And it was Trump, to me, that took entitlements off the table in 2016 — and that's where the money is. So I give him an F on fiscal responsibility also. So—

Sonali Basak:

Want to switch gears here, because we only have a little bit of time left with you. I want to talk about the market, and I want to talk about how you're looking at certain wagers that you've put on a while ago. We spoke about Nvidia, and you had said that it would some be something that you held for years. And ever since then, you held it for a while, but more recently you've been selling it off. How much do you have left of it, and why have you been selling? Can you see yourself getting back into again?

Stanley Druckenmiller:

I've made so many mistakes in my investment career. One of them was, I sold all my Nvidia, um, probably in somewhere between 800 and 950. I think it's 1300 on that stock now.

Sonali Basak:

You ow none today?

Stanley Druckenmiller:

I ow none. And I — I ow none. The last 400 points, it was a big mistake. Uh, in terms of AI — and by the way, when I — when I saw you at that conference, which was 18 months ago, I fully expected to own it for years — but I think it was 300 in change. And, um, as I also said at a media interview, I'm not Warren Buffett, so I thought — I thought I was going — but what changed is, it tripled in a year, and I — I thought the valuation was rich.

We are big term — long-term believers in Ai, and there's still many ways we're playing AI — particularly the infrastructure that's been built out to support the power needed. Uh, and yes, I think Nvidia is a wonderful company, and where the price to come down, we get involved again. But right now, I'm licking my wounds from a bad sale there.

Sonali Basak:

You know, the other question I have to ask you really quickly — we don't have a lot of time — but you were saying that you express a lot of your views through the bond market. The 10-year hit 4.1% again recently. Do you think it goes much higher, and where do you think it ends next year? Would you go very short at rate?

Stanley Druckenmiller:

I don't know what very short means. Um, we shorted bonds the day the Fed cut 50, cuz we thought it was a mistake. Um, we still have that position. It's not so much, um — I have a view on where it's going to go short term. What I — what I do believe: if — if pal ends up being wrong here and inflation re accelerates next year, bonds could go up a lot — a lot of basis points, hundreds — whereas if he's right, you might lose 25 or 30 basis points short. The golden rule I've always had is — is the 10 years should trade around where nominal GDP is, which is 5 a half%. So the risk reward to me is being short bonds.

Key Themes

The interview is intellectual humility as routine practice — the exit audited with the same visibility as the entry. The Nvidia arc as a whole is secular vs. cyclical separation's complete case study: theme correct, timing imperfect, assessment public. And the Fed-independence warning is the endgame in its institutional phase — the fiscal math reaching for the last independent referee.

Context & Significance

The arc this closes is the KB's most complete real-time trading narrative: entry (June 2023), trim (May 2024), exit (Q3 2024), and this interview's audit (October 2024). Every stage happened in public, on the record, with the reasoning attached — including the stage where the reasoning proved wrong. For readers, it is the cleanest answer to the question the KB exists to answer: how does the greatest macro risk-manager alive actually behave when a trade goes against him? Like this.