Economic Club of New York Conversation

Summary

On June 3, 2019, Druckenmiller appeared at the Economic Club of New York's 507th meeting in conversation with Scott Bessent — a fellow Soros Fund Management alumnus and the future U.S. Treasury Secretary. With the trade war escalating, he explained why he had just gone from 93% invested to net flat on a single presidential tweet, buying Treasuries not to make money but because the environment had become unplayable — and laid out an 18-month rate outlook that proved strikingly accurate.

The ECNY appearance became doubly famous eleven months later. In a follow-up virtual session on May 12, 2020 — weeks into the post-COVID rally — Druckenmiller told the Club that the equity risk-reward was perhaps the worst of his career, then publicly reversed as liquidity overwhelmed valuation. The two appearances together are the KB's canonical case study of conviction held loosely: strong views, stated publicly, abandoned the moment the evidence demands.

Full Text / Extended Excerpts

On going flat on the tweet (June 3, 2019):

"We had this old pro there and whenever it was blowing really hard, there'd be whitecaps on the bay, and he'd say, 'When there's whitecaps on the bay, the pros don't play.' When the Trump tweet went out, I went from 93 percent invested to net flat and bought a bunch of Treasuries — not because I'm trying to make money. I just don't want to play in this environment. There are going to be better environments to take a shot."

— Stanley Druckenmiller, Economic Club of New York, June 3, 2019

On the political regime change:

"We're in a bear market in politics. I mean, there's just no question about it — in every country across the board you've got this populism, this protectionism."

— Stanley Druckenmiller, Economic Club of New York, June 3, 2019

The May 2020 follow-up verdict (no video published; as reported by Reuters, CNBC, and Bloomberg):

"The risk-reward for equity is maybe as bad as I've seen it in my career."

— Stanley Druckenmiller, Economic Club of New York virtual appearance, May 12, 2020

Full Text

Stanley Druckenmiller Interview - The Economic Club of New York. NOTE: the actual event date is June 2019 (uploaded 2019-06-05); no 2020 ECNY Druckenmiller session exists on YouTube Source: https://www.youtube.com/watch?v=r7kMSqgruOY (Peppi Carpinelli (channel)) Transcript: YouTube auto-generated English captions, converted to plain text (timestamps removed, rolling-caption duplicates removed). Auto-captions may contain transcription errors.

to the 507th meeting of the Economic Club in New York and our one hundred and twelfth year. I'm gonn Hutchins, vice chairman of the club and co-founder of North Island. The Economic Club in New York as the nation's leading non partisan forum for speeches on economic, social and political issues. More than 1,000 speakers have appeared before the club over the last century, and we've established a strong tradition of national excellence which I'm quite confident will persist and be reinforced today. Before you start, I want to take a moment to thank the many members of the Centennial society who are attending here tonight. The club is, I think, one of the best bargains in New York, so you should all join if you're not members. But the Centennial Society of those people who have actually chosen to give us more money to support the operations, the club made the capital gifts, and they play a special role in ensuring that the club remains financially sound now in the future. We'd also like to welcome our of 2008 19 class of Economic Club of New York fellows, who are young and up-and-coming members of our business and technology communities in financial communities in New York. It's great to have you with us tonight.

So it's my pleasure today to introduce our speaker this evening, Stan Druckenmiller, chairman and chief executive officer of the Duquesne family office, which he founded in 1981, which in which he ran until they closed the firm at the end of 2010. From 1988 to 2000, he was managing director of Soros Fund management, where he served as the lead portfolio manager. By the way, I should say I'm supposed to give this bio, but if you don't know Stan's bio, you're probably in the wrong room, and they'll be a test afterwards whether I got it right. Lee portfolio manager of the Quantum Fund and chief investment officer of Soros, and had overall responsibility for funds with an asset value of at least twenty two billion dollars.

Stan is also, as evidenced by who he's sitting with here tonight, as an active member of our community and very involved in philanthropy. He's chairman of the board of the Harlem Children's Zone, on organization nine I think very highly of, chairman of the blue Meridian Partners, board member of Memorial sloan-kettering. They're already talking about, they're worried about their investment results for today. And of the Environmental Defense Fund, he's a member of the investment committee. By the Union, anybody who has stand on his investment committee is very fortunate. Bowdoin College, and co-founder, I think this is fun, and board member of the Kasparov chess foundation. The format today is that we're fortunate to have another great investor friend of mine, Scott Besant, chief executive officer and chief investment officer of the key square group, doing the honors speaking. Scott was the chief investment officer for Soros Fund Management, the investment vehicle for the Soros family and their foundations, from 2011 to 2015. Frequent contributor to the International economy, including a recent article reason on reforming the Fed. He was kind enough not to press me on that during cocktails. From 2006 to 2010, he was an adjunct professor of at Yale, where he taught economic history.

He's profiled in the book macro investors inside the house of money, and featured prominently on mieze history of hedge funds more money than God. He's a frequent speaker on economic and investment panels. And Scott, thank you very much for being here today to do this. Many of you in the audience have shared your questions in advance; those have been given to Scott to inform the questions which he's going to ask. And at the end of their conversation, I'll come back up to the stage and we'll ask for questions from the audience, which I recommend being substantive and short. And I want to remind everybody that this conversation is on the record and being carried live.

Gentlemen, the stage is yours. [Applause] Great, well thank you Glenn. I'm excited to be here today and to interview my friend and mentor Stan Druckenmiller. We got a lot to cover: we have the sputtering economy, the US and rest of the world, the flip-flopping fed, the petulant president, a little China Syndrome, and then maybe some advice on how to navigate these conditions. To begin with, I would say I've had mostly the good fortune of speaking the stand every week for a couple of decades, and I'd say mostly because if he's having a bad day, you're gonna have a bad day on the phone. So I thought tonight we would go through the equivalent of one of our phone conversations. So why don't we get right into it? You don't speak very often in public, and you and Kevin Worf pinned an article in The Wall Street Journal this past December outlining why you thought the Fed was making a policy er if they raised rates. And I'm curious the what you were thinking then, because for the past three four years you had been urging them to raise rates, correct? I love to contradict myself.

I need to go into a little background with the first part, but what the answer the first question is: even though I thought rates were still too low relative to maybe where they should have been, by that time period we had observed that the global economy, particularly trade — this was pre the latest antics — was starting to slow down, and we were afraid it could seep into the US economy. Probably more important in my mind, we were in a meltdown in financial conditions, and since 1913, when the Fed had been founded, the Fed had never hiked with the decline we'd had in the SP and other indexes going into that. Now that was the primary reason. The editorial has been way over read and way over analyzed; the last two words in it were for now. The Fed shouldn't hike for now, take a pause and just see how things develop. There's some background. Those got, you're correct.

Let me start from the very beginning. I will go to my grave, and often wrong never end out, believing that really loose monetary policy greatly contributed to the financial crisis. There were obviously problems with regulation, but when we had a 1% Fed Funds rate in 2003, after, to me, it was pretty obvious the economy had turned — and I think the economy was growing at 7 and 9% nominal in the fourth quarter of Oh 3 — and that wasn't enough for Fed. They had this little thing called considerable period on top of the 1% rate, just so we would make sure that their meaning was clear, and it was all wrapped around this concept of an insurance cut, the last one an insurance policy. But the history of what I have seen, and you know I've made some money predicting boom-bust cycles — it's what I do; sometimes I'm right, sometimes I'm wrong — but every bus I had ever seen was preceded by an asset bubble, a generally set up by Toulouse policy. And the latest one at that time period that had just occurred was obviously Japan, responding to our pleas in their own after the plaza Accord, setting up the bubble in the second half of the 80s. And then we all know what happened in the 90s. So that's sort of the background I come out this with stance. So we can go to more recent history, the this time last year.

You got the Alexander Hamilton award from the Manhattan Institute, and during, it was really slim pickings obviously, what nikki Haley was on the other side, so the an opening act. But you said, if I were trying to create a deflationary bust, I would do exactly what the world central banks have been doing for the past six, now seven years. The what did you mean by that? Yeah, so I think Bernanke and the rest of the Fed did an unbelievable job once the bust occurred in oh nine. The QE was aggressive, it was decisive interest rate policy, every everything they did was spot-on.

But coming out of the crisis — and I loved QE one — coming out of the crisis, qe2 I wasn't thrilled with, QE 3 I was really disappointed with. And the reason was I was very fearful that the emergency days were over and the possibility was we were going to set up another misallocation of resources, the most recent one I was obviously the one I referred to, which was the low interest rates which created the housing bubble. So I mean, 2012 came around, 2013-2014, economy kept getting better and better and better, and every time I would give a talk like this, which was not very often, and everybody said, well, what would what would you do, would you actually raise rates? I said, yeah, I would sneak one in every time financial conditions allowed, and hopefully by some point rates will be high enough that we'll have an appropriate hurdle rate for investment, where people won't be doing stupid things like they have in last asset bubbles. But as you know Scott, we got all the way into 2014 and 15 and we're still doing two III, and I was just afraid that people were going to start to do stupid things, and indeed they have. I'll just give you a few things that occurred since 2010. So corporate debt in 2010 was six trillion dollars; it's now 10 trillion dollars, so it's grown 65 percent.

I don't know what anybody thinks about that; it's not necessarily disaster, it depends of what they borrowed. But I would point out that during that same period, corporate profits grew from 1.7 trillion to 2.2 trillion. So on a, that's cumulative over eight years. So on a four trillion dollar increase in debt, we got five hundred billion in corporate profits. But it's worse than that: the interest cost on the extra four trillion in debt only went up 23%, from four hundred and seventy-five two to five hundred and sixty five billion.

So think about the horrendous return productivity of capital here: you increase your debt sixty five percent, but your interest costs only go up twenty three percent. You would think your profits would explode with that formula; they went up 29% over eight years, not in one year. You know, they compounded with less than a three handle. You might ask, wait, corporate profits have been great? No, I'm talking about total corporate profits, not earnings per share, which is the other misallocation of resources during that time period: five point seven trillion buybacks, financial engineering, versus two point two trillion in capital expenditures. And if you go back to 2010, capital expenditures were twenty percent — I'm sorry, buybacks were twenty percent of capital expenditures; they're now fifty five percent, with a much higher stock market. So you can sort of see where I'm going with this. You're getting a pretty gross buildup in the private sector. And by the way, if you look at it, the companies that are growing, innovating, they're not the ones who are borrowing the money. It's not Google or Facebook; they're spending their brains out on innovation. It's old dying retail companies — would, by the way, 24 square feet per capita in this country, and that number is three in Germany and two in China. But we have all these zombies walking around.

So here we are, and probably the most innovative, I would say, economic disrupted period since the late 1800s, in you're hardly standing bankruptcies, because there have been no market signals from the Fed. Now, this is pre the last year; we'll get into that. But there's one other problem with all this, and that's our government responds to market signals too. And the clowns in Washington, unless they get a signal from the bond market, they're just going to keep spending. So for the first time in history, we have massive deficits and full employment.

Estimates are this year there'll be a trillion dollars; god help us have we got in a recession. If you just take the mean of what happens in the recession, that would go to a trillion eight. Debt to GDP has gone from 65 to 105, so you get the drift. So this is where we were going into this fall. I felt that Bernanke and Yellen in particular, there were so many opportunities to just put a quarter end quarter in wall financial markets were booming, but fear of deflation prevented them from doing so. There's this belief at the Fed that if you're near the zero bound, you're near deflation, and that can cause, you know, that's the boogeyman that we dealt with in the 1930s, Japanese dealt with. But I've never seen a deflation happened because you were near the zero bound; everyone was preceded by an asset bubble. And we, to me, are creating a misallocation of resources and an asset bubble that could set up a deflation. And that's why I said what I did. Pretty long answer to a simple question. So the Fed shouldn't be taking a victory lap; we've had malinvestment, no hurdle for capital. They, what are your thoughts on the new inflation target, and how did QE contribute to income or wealth inequality? I just don't understand the 2 percent inflation obsession. We had 3 percent deflation in the late 1800s and the economy grew at 8 percent real for 10 years.

We had inflation of less than this level in the 1950s with the Fed Funds at 4, and we were just fine. It's very clear to me, but office not the Fed — and they got the phd's, not me — that you need a hurdle rate for investment, and if you don't have a hurdle rate for investment, bad things happened. And there are periods when maybe at minus 1 percent inflation rate is appropriate, in other periods where it might be 3 or 4; it depends on what's going on. But we are in the middle, in my opinion, of one of the great productivity shocks in the last 150 years.

I understand the government statistics don't show it, although we just had a very good quarter in productivity, but to me it's immeasurable because our measurements haven't caught up with it yet. And by the way, I don't have the answer, the measurements; I just know they're not right. I'll just give you a couple of examples. Three and a half billion searches a day on Google. YouTube in the last sixty days has had more content uploaded on it, original content, then the entire television industry is done in the last 60 years. In 2010 we took 300 billion pictures; last year we took two and a half trillion pictures. We took more pictures last year than since the beginning of civilization. The marginal cost of those pictures is zero. The quality with the phone in my pocket is better than it was with the best cameras 10 years ago. And in GDP accounting, okay, since you're not paying 50 cents to go and get your Kodak film process, it actually subtracts from GDP accounting. Now, I understand they get some advertising goes over here, but there's no way to measure this stuff, and I could go on and on. I think everybody in this room, there was a study out of MIT that you'd pay eighteen thousand a year to use Google search; I'd pay a lot more than that, $3,500 to pay good use Google Maps. All this stuff is free, so it's mismeasured. It's the same thing with inflation, by the way.

So why in the hell we're sitting here going off 1.4, 1.6, 1.7? We don't know what these numbers are; we don't know what GDP growth is; we don't know what inflation is, and we are in a Productivity boom. So I'm not, I'm not convinced that minus 1 or minus 2 percent deflation wouldn't be bad. What, we're all going to say, oh my god, I'm not going to buy something this month, so because Google's making my life cheaper? If we've had a positive support, if we've had a positive supply shock, then your view is low inflation and disinflation aren't bad? The, is it possible the Fed, asset bubbles are going on?

Yeah, so the, that the Fed is focused on the disinflation, and the asset bubbles blowing up over here as a result. The, but is it possible they just miss the secular dynamic of platform companies, the, and the sharing economy? I guess so. I don't understand all this stuff, you know, our star, U star, Z store; they just look like, you know, with all the stuff going on, to be talking about that just sort of astonishes make, and it would probably be about 50th down on my list. I had a colleague — it was not Kevin worst, I swear on my children — who was at the Chicago monetary conference two weeks ago, and I, or was a week ago as a Friday, I said, how did it go? In the meantime, we've done all these tariffs, all this crazy stuff. Oh, it's the night of the tariff thing, when leha is going back to China, and the markets in a complete meltdown. And I said, how was the conference's? Oh, they're really feeling much better about things, and they're very comforted. And I said, why? Because Michigan inflation expectations five to ten years out ticked up from two point five to two point six? I'm like, seriously, this is, this is what we're focused on right in this country? And by the way, no kidding, these guys all have 30 IQ points on me, so I just don't get it.

But well, we just, we just had the one of the biggest two-day moves in the history of a two year, so maybe they were focusing on the wrong thing. Who knows. So why don't we talk a little about your economic methodology, the, you, the Stan always taught me the micro drives the macro. Can you explain what that means and how you use it? Yeah, well, first of all, I was a dropout of the ph.d program in Michigan, so we'll start with that. But when I got in the business, it was, it became clear to me that, well, macroeconomic statistics are not great in terms of predicting the economy. They're really great in terms of telling you where you are and where you bend, but in terms of predictive ability, they're not great.

By far, the best economic predictor I've ever met is the inside of the stock market. I don't mean the stock market, I mean the inside of the stock market, and that's looking at cyclical companies within the stock market. And I particularly like, because it tends to be the right kind of timing, trucking, retail, that kind of stuff, the Russell 2000. So if you just look at the periods I've analyzed, generally those stocks start going down and defensive stocks and secular growth stocks start going up on a relative basis. So what's that telling us now? Well, it's very clear: the xrt, the retail index, is down 24% since the high in August; I think the stock market is only down seven or eight — it was five when I was preparing for this. The Russell 2000 is down 15%, with a lot of breath in that decay. The ESPY metals is down 20%. And unless until today, which hopefully was some I'll go, otherwise I'm just dead wrong, which I am occasionally, it's been very clear all that stuff is at 52-week relatively lows, and all the companies you would analyze that probably do about the same and a 1% nominal economy as a three, they're all at relative highs. So the inside of the stock market right now, it's not saying we're gonna be in a recession, but it's saying you better, you better be careful and keep your eyes open.

It hymens in the audience, one of the people that taught me a lot of stuff in the business. And that's the other thing: we just talked to companies, and some companies, you know, lead the cycle and some companies lag the cycle. And you don't really like to take look, talk to the CEO; she talked to the purchasing manner should get a little, you get a little down. And that's more mixed right now, so it's not that clear. Another indicator we use: I've never seen a recession before corporate profits peaked; hasn't happened.

That was great news until two weeks ago, when we got our first flow funds account, and it turns out corporate profits look pretty bad in the first quarter, they were down. And if you look at margins and labor, tariffs, everything else going on, it's inconceivable to me that wasn't the peak in corporate profits. So we're now five months into that. So I am not willing to say we're going down, but I'm willing to say there's a lot of warning signs out there that give me great caution down in the economy. Yeah, yep, yeah, and not to mention the obvious, trade wars killing animal spirits, all that kind of stuff. I'm trying to cite some of the, some of the unobvious. So one of the big debates over the past twelve months has been quantitative tightening. Federal Reserve insist it doesn't exist. The, have you've seen it? I'm just a dumb money manager, and I remember, number one, I remember in 2010, whenever they did QE 1, arguing with some of my peers before it happened that QE would be, buying bonds would be bearish for bonds. And they looked at me like, what is wrong with you? And by the way, I was dead wrong for five weeks. And my theory was QE, the buying of bonds by the government, would cause risk to go up and therefore decrease the demand for bonds from other entities. It took about five weeks, but it worked.

Then we stopped QE, and sure enough, like the day we stopped Huey, in other words buying a bonds, this 2011, bonds went up, Ochs went down. Everybody blamed it on Boehner and Obama having a hissy fit with each other in the White House, but I have followed this for eight years, and it was seven four seven with: when the government buys, bonds go down; when the government, and stocks go up, and vice versa. So as some people in the room who are on some boards I'm on know, about a year ago I started worrying that cutie was going to hit financial assets, and it did hit — well, I won't say it hit it; the stock market started going down when we went from QE to cutie.

The actual global date was October 1st. And so yes, I believe in it; we're still doing it. But oh, that's the other thing that's going on: we have three more months of this stuff. It's a very interesting environment to be doing quantitative tightening. And as you can tell, I'm not like some perma dove, right? So the, on the politics, you know, this is fun. So you and I had talked, we thought tech was the ultimate disruptor in the economy, but now we don't have a black swan, we have what I call an iron swan — and it's an original, by the way, in itself traveling the industry. Did President Trump just break a fragile economy going into an election? I don't know is the answer. As you know, I remember Bernanke, who doesn't have 30 sqp IQ propellants him, he's got like a hundred on me, saying — he's from South Carolina, so yeah — saying so prime was contained. And what he didn't calculate where all the ripple effects and animal spirits going to shore to shore, terror spirits. And if you just add up the tariffs we've done by themselves, it's quite debatable whether this is going to hurt the economy or not. And in fact, Peter and Navarro apparently has convinced the president that it's going to help GDP accounting, because exports obviously go up relative to imports.

But there's a good chance that by hindsight — and by the way, I got caught with my pants down; I didn't see him doing what he did, but I also didn't see this — looking back, the is MS factory orders, a lot of stuff was rolling over a month before we did our China thing. So my real answer is I don't know. B, it really concerns me that yes, he may have, right? So in 1992, when you started teaching me macro, the, my impression was as half politics, half economics. And then in 2002, after the.com, the money spigots got opened, and it was all just money. Now it seems like we're back to politics, the matter as much as money flows. The, how should we think about that? Yeah, when April, everyone, I was so bullish.

So I was 93 percent long when the guy did his thing, and I said, well, the only risk is political, but everybody knows you're not gonna be stupid enough tenth the trade deal blow up. So I was wrong. We're in a bear market in politics. I mean, there's just, there's just no question about it. In every country across the board, you've got this populism, this protectionism. I don't care what they say, they're, you, I will go to my grave, you're not going to tell me that protectionism is as good as free trade; I just don't believe it. So, and this weird sort of populist saying, and I'm glad you mentioned the Hamilton speech, because I think I named it: can we try capitalism? We just seem to be moving further and further away from it, where the president attacks Amazon Ori attacks AT&T today because apparently CNN kicked him off, and just all this stuff. It's not good. Does it matter? I don't know. Again, it's part of a big puzzle, but it's certainly one piece; it doesn't look very good. Well, it seems like when risk, equity risk premiums low, the VIX is low, the, you get political volatility coming through. So political volatility in 2016, you thought from could win? I thought he would win. The, now most of our Wall Street brethren, it's kind of 9 to 1 the president's likely going to be re-elected.

What do you think's priced in, and how do you think the market should think about this? Well, I try to avoid these tout dinners, but when I go to them, if I ask if presidents can be re-elected, they don't say yes; I steer at me and go, of course. So I assume the market, whatever that is, thinks he's going to get reelected. I personally think it's going to depend on the Democratic candidate. But he drew us inside straight; he won seven out of seven states by less than half a percent. And if you go county by county in Pennsylvania at Michigan and Wisconsin, he is in deep trouble. And that was with the economy growing at 3%.

So I personally don't believe, unless they put up one of the 2/3 crazies — I can't remember how many there are — I think he, I think he's got, I'm assuming he's going to get beat. I think the market assumes differently. I think if he does lose, particularly if I'm wrong and a crazy beats him, I mean, it's worth a lot of PE points, a lot. So you think Trump all Felician 2021, or comrade Sanders, is worth worse for the market? I'm gonna write in for you. Terrible. All right, so now the Panda in the room: China. Yeah, can you, the, frame that forth a little? Yeah, I think those who believe a conflict between the United States and China is inevitable — and apparently most people believe that — obviously, if you're from the United States and you believe that, you want the conflict now. There's a billion, is it a billion for, how many people they have over there, billion for people; they're catching us, and probably good chance pass this at some point technologically. We have no chance against China if there's a conflict in 30 years. If you're China, okay, an economic conflict or a kinetic conflict or both? Either. Okay, either military or economic. If you're China, I think if you think there's going to be a conflict, you have the same view: don't know whether we can win now, we're definitely when and if it happens in 30 years. So I think this is probably the genesis of this.

On the very immediate term, as I said, I did not expect the lovely tweet that interrupted my golf game on Sunday afternoon about a month ago. But having said that and seen the situation from them, my impression is that at this moment in time, which is the only thing you can ever say about Trump, at this moment in time, he does not want an extra 325 billion in tariffs; he doesn't see any marginal gain for that. But he does want tariffs on when the election happens; he wants to run on tariffs; he thinks they are a winning formula in the swing states.

And the belligerent sort of verbose pressure he's putting in, the braggadocio toward China, he's giving Xi Jinping no off-ramps to make a deal. And I'm, it's funny because to two to three weeks ago, I thought I was here and the market was here on the prospects of a deal — this being deal, this being no deal — and I think the markets kind of here now and I'm here. So I'm not that far, I'm not that much more negative than what's priced than the market itself. But my working assumption is, with the economy here — I would have told you a week ago, in the S&P here — there's no chance of a deal. But my guess is the economy is not going to be here in November of twenty, and I don't know where the SP is going to be, but I think those will factor into it. But it, it's bad, and the Huawei thing is real. So when we were talking in yesterday, you said you thought, you know, if we get the decline in the SP and the Mexican tariffs, were bad for the u.s. negotiating position? Yeah, they're terrible. I mean, I see Jim Penge, I'd be doing cartwheels, because Lee Hogg comes back, he's a reformer; he thought the deal was not just, he thought the deal was actually in China's interests, because it undermines the SOE and doesn't, does a lot of other reforms, the old guard and the Politburo. And in my opinion, Xi Jinping did not feel that way.

They came back; it was pretty obvious at White House her and taken leha's pants down in the negotiation when the Politburo saw it, and she's in st. Paul. That was the end of that. But there was still some fight. But can you imagine trying to defend the deal if you're leha this week after — I mean, okay, there's a problem at the border, but economically, and after Mexico did everything we asked, they did everything right — and this is how the guy behaves if you make a deal on them? So to me, she's Jinping and the hardliners just got a very big gift from Donald Trump doing what he did to Mexico.

So you're not a nationalist, you're not a monopolist. The, but today the Justice Department opened an investigation into Amazon, Google and Apple, and it seems like the opposite of what China is doing with Huawei in terms of defend, protect? So this is amazing to me. I'm not a nationalist; I don't even know about this economic war. But if you are gonna have an economic war with China and you're looking ahead, okay, where do you fight the war? To me, you fight it with a AI, and they, you know, you go where the future is going. So the minute this trade stuff started happening last fall, they started easing up on their private sector, particularly Tencent, Alabama; they're huge supporters of Huawei; they're oiling their whole high-tech machine, all their engineers. What are we doing? Oh, we're saving steel, coal, aluminum — really, the future here, guys. And what are we doing with our leading tech companies? We're throwing sand in the gears and making their life miserable. And by the way, if I hear one more clown on TV telling me that Google's innovate anti innovation — by the way, I do not own Google — come on. I mean, if look at the products we're using from that company, and the reason that stocks on tyrants are spending a fortune trying to do more new stuff. And by the way, this thing about it's harming consumer, cuz all the products are free.

So I'm really on the other side of this thing about, like, and I am NOT a nationalist. But if we're going to be in some kind of conflict, it's going to be fought among the big tech company; it's not our aluminum steel companies, we're going to get rolled notes. I mean, it's amazing that the general narrative is the president she can't stand the chairman of Huawei, or the rendered a plane, and the, you know, obviously the Jeff Bezos isn't the president's favorite person. Well, they were not happy with each other, but it's their champion and he's their champion, and now they're, now they're partners.

Whereas you're right, the president not real fun of mr. Bies us. And we're getting the gong, or you are not me; we're gonna move into the next phase of our conversation. By other guys, that was terrific, thank you. And have questions from the audience. I have a very large type that says do not call on the media in the back row, so if you won't raise your hands, I won't be rude to you by not calling on you. Lynn, do you want to start off? Good, take, taking microphone, introduce yourself. Can we, everybody hear that? Try it again. I'll repeat the question if it doesn't work. You talked about how there are signs for caution that the economy may have peaked; what would be a defensive investment posture now? A week ago, I would have told you Treasuries. They, you had the great thing with your golf pro two weeks ago that you told me. But you know, we were in a board meeting together, and some of you have probably played this golf course to national, and we had this old pro there, and whenever it was blowing really hard, there be Whitecaps on the bay. And he said, when the pro, when they're Whitecaps on the bay, the pro don't play. When the Trump tweet went out, I went from 93 percent invested to net flat and bought a bunch of Treasuries — not because I'm trying to make money, I just, I don't want to play in this environment; they're gonna be better environments to take a shot.

So I think if you're confident in your long-term view and your ability to make money, this is not a great environment to be going to vet in the or Antion one way or the other — not short, not long. It's, in terms of the economy though, if you believe that, the obvious posture would be, would be Treasuries. But that's, I actually own a lot of Treasuries, and when I bought them, I wasn't sure rates were going to go down; what I was sure is they weren't going to go up, and I thought they were a one-way bet.

But with the two-year at 184, you've got 75 basis points a carry in that thing right now; that's the way the roll goes, it's a two-way bet, so they're becoming less interesting. But if you believe the economy is going to deteriorate, they're the best game in town. Those not, Gold's not bad either. Cover questions, someone else, here in the back row there, gentlemen, and then we'll come over here. Thanks so much Stan. Warren Buffett has called Bitcoin rat poison square; on the other side, you have folks like Peter Thiel, who I think most people in this audience would agree have done a better job at being ahead of the curve in predicting disruptive technologies. Could you share your thoughts with us about Bitcoin? It's probably one of the few asset classes in the world that has done a better job rallying over the past few months than Treasuries. I look at Bitcoin as a solution in search of a problem. I don't understand why we need this thing, and the great thing they're out there talking about is a stable cryptocurrency. Well, it's, to me that's called the dollar. Now, if we keep weaponizing tariffs and sanctions and everything else we're doing, maybe five or ten years down the road. But the pro don't play; I don't, I just don't need to be playing in Bitcoin. I wouldn't be shorted, I wouldn't be long it.

I don't think I'm a Neanderthal, which is what I've been called when I set it in, when I own Bitcoin. You keep telling me it's gonna be a store of value like gold; maybe, I mean, it could go to a million, but I don't understand why it's a store of value other than you can't create it. Well, there's a lot of things you can't create that aren't gonna go to a million. So, other questions, back here. It's only young. Yeah, right there. Two quick questions Stan. One, just going through your political analysis, you seem to imply that the crazies are worse than the president. Are there any so-called enlightened Democrats, and could one of those guys actually win?

That's first question. I got one short follow-up. I didn't mean to imply that they're worse than the president. I, you know, if I vote for Scott, think how bad they both are. I, that's just such a horrible choice. You know, I'm a big proponent of free markets, and both of them seemed to me to be taking away from free market capitalism. Obviously, if you're investing in stocks, you're going to like Trump better than the crazies, despite all the inner interventions he does. But you know, I, yeah, I'm just depressed about both sides of the coin. I will say that one thing that really annoys me is — and I'm not a hater — well, sort of, is this narrative, well, the policies are great. Well, first of all, there's more than policies to the job of the president is states; there's a dignity office; there's a role model you're sitting for the rest of the country; there's leadership, and to me that's important part of being president. But by the way, I don't, I don't know how great the policies are; there's a lot of crony capitalism and stuff going on. To me, nobody's been more for tax reform than me, and then when he looked at that thing, my god, the stuff that was in there. You can buy a used jet now and write the whole thing off in the first year. It's bad enough that I'm gonna buy a new one and I can write all that off, and I can see how that causes production.

But how does it use jet, why do you get to write that off? I'm not so sure. The, I would vote for you enthusiastically. My nine year olds here, so he wouldn't vote for him when you call. Yes. So there are three ways to get rid of the president: impeachment, the 25th amendment, or the ballot box. Which way do you think it will be? Oh, at this point in time, you'd be crazy to do anything but the ballot box. It'd take a year, I have to impeach him; the country would go through hell. It's just, it doesn't make any sense. Questions over here in the back, on the right hand side.

Thanks Dan, Alberto Masada, NASA events asset management. You spoke of markets from the from the issuer side, and I wonder from the buyer side of markets, financial institutions or groups of people, what worries you? What worries me as a buyer, or about the buyers? Know, about the buyers. So where are the problems as you see them? Well, I think we've all been forced, per my first rant, we've all been forced way out the risk curve, and we bone a bone a bunch of assets that we don't necessarily believe in. But I don't know whether Jason is here, but that Tina thing, there is no alternative — that's a hell of a reason not to own an asset, but we're all guilty of it. So yeah, that's what worries me the most, is that we own a bunch of assets — and by the way, there's derivatives positions out there too — that ultimately they're probably in weak hands. That's for voting quite, over here in the bet, over here. One of the odd, does China have to lose in order for America to win? Is this a duality that we have to deal with? Is there another way to go back? Just tryna have to lose in order for America the game, because the way we are going, it's just animosity people. To me, with these two leaders, I think the answer is yes. I think with a different two leaders, absolutely not; I think this didn't have to happen.

But with a leader for life who put out the 2025 scenario, and Trump — and now frankly, I will say one thing, Trump has really moved the needle in a bipartisan consensus in this country. That's justice, that's really astonishing. I mean, China has no friends on the Democratic side. I think the answer to your question two years ago was absolutely, they don't have to lose. Right now, I'm kind of worried that the answer to your question is yes, given the players and the entities we have.

My partner Kevin worse you, I think the world of, he thinks Donald Trump will be the most Pro China president in the next thirty years; he thinks that's what kind of cold war were heading into. Over here, young man. They're giving you, focus a lot on liquidity. I was wondering what you thought of the present liquidity conditions in the market. Not like the old days; they're tough. I mean, SSPs are not as liquid as they were 10 or 15 years ago, Treasuries, their days when they're not liquid. I'd say it's fadi; you get these ball and these algo episodes, and if you're on the wrong side of, there's no liquidity; if you were on the other side of it, there's tremendous liquidity. But the quiddity is a moving animal; it's, things can be very liquid, and then three weeks later there can be no liquidity whatsoever. So I don't know what I answered your question, generally. All right, here. Thank you. Give me your assessment of where China and the US are and the characteristics of the two presidents here. For a u.s. global investor, either sue any China play, short and long term? If so, in what form? I mean, maybe I'm an idiot, but I own Alibaba and 10 cent, and I own some private growth companies over there. My portfolio has basically been long disruptors and short disrupted for like three or four years now.

And those companies, to me, they're there, their growth rates I see are not going to be that messed up by us; there, they can, they can do a lot of domestic growth there. So yeah. And I mean pingyang, the insurance company, I don't see how tariffs are going to kill that. So there's a lot of names I own in China, and frankly, they've got, if they want to, if they want to pull levers — and as you know, I'm not a real long-term guy — if they decide to pull levers, they can make that place go for 18 to 24 months; probably have more ability to do that than we do here; we're kind of like handcuffed. Very back row, over here, right there, yes.

This time I'm curious to hear your prognosis for the evolution of the hedge fund industry, Givens of what seems to be a rising trend of titans like yourself converting to family office. Do I see more of that, or my view of the hedge fund in general, or the hedge fund industry in general and how it's likely to evolve? Well, the hedge fund industry, to me, had like eight to ten savant superstars in the 70s and 80s, and they charged rolls-royce prices, and they were expected to make 25 percent a year, and those eight to ten guys did. And then they got nine thousand imitators who charged the same prices as those eight to ten guys. What are we down to now, do you know Scott? I don't know, I'm probably 4,000, hopefully. So I think that the fees are still too high; we're still going to shrink. But there's probably five to ten people out there, women and men, who are worth more than the fees right now. So there's, they're still going to be superstars, but we need to get back to like maybe 200 or 300 from 4,000. And if you make a large innovation, the club stand will tell you who they are. Gentlemen, right here. Hi, Rick saying.

You talked about this not being a great environment for long or short, but you talked about the internals in the market being positioned defense defensively versus not; you talked about being hard for China not to be able to make a deal; and you also said that if a Democratic president is elected, that would be a couple points on the P multiple. No, only if one of the crazies is, okay? Well, I put the illustrate Sanders or Warren, maybe 30 percent. Okay, I mean, I think it would be as big as Reagan the other way. But with the market not that far off its highs, I wonder why you think it's not a good environment on either side, particularly the downside, given that fact set. Well, first of all, I'm sure it is a good environment either short or long; I just don't know what it is.

So I'm talking about myself as a, myself as a practitioner, this, the disciplines I've used to over the years. I like to make very large bets, very contrary to, when the Ducks are lined up and I can analyze it. If you can analyze Donald Trump, more power to you; I've been more wrong foot — it's a swan, not a duck, this one — I've been more wrong footed by this guy, and shame on me. But what I have done, and it's worked — sure as hell didn't work today, but it's worked — is I've been long a lot of these secular growth companies that I think can do spectacularly well in a 1% nominal growth environment. And we know who they are: the cloud companies, particularly the little ones, the SAS companies, that kind of stuff. And I've been short the disrupted stuff. The biggest problem for me as, I made 70% of my money when I was competing in bonds and currencies, and the central banks have really, I can't make 30 percent a year anymore, and I don't even charge fees now. So it's a depressing environment. One last question here, the young man back there. I sent, sorry. Do you think that in a prolonged downturn the Fed would consider using negative rates, and what that, what would that imply for the US? Oh yeah, they're gonna do the works.

I mean, these guys, I did a Bloomberg interview, might allow to say that, the day, the day before the Fed meeting, and I said one of the reasons I didn't want them to raise rates, because if they did, I thought we'd have a meltdown and it would lead them to get really crazy. And you know, stuff that I thought was brilliant in 2009 and should be used once every 50 years is now sort of being discussed as part of the toolkit, even for like a recession. I don't know where they're gonna do its negative rates, but one of the reasons I own the two years, I could easily see them going to zero in the next year and a half, easily.

And if I had their criteria and set out what they have laid out, their metrics, I would say the odds are very high that they're going to cut 50 to 100 basis points in the next year. I'm not saying I would, but I'm not in charge, thank God. But yeah, I think you're going to see, if this thing ends up being a misallocation of resources led problem for demand down the road, everything I see out of central banks googly is radical policies ahead, and an attempt to fight the thing. Okay, so before we closing, I have a couple of quick announcements. The three of us aren't allowed off the stage by Barbara Van Andel until I get through these quickly. The first and most important probably is the bar is still open and the food is still available across; we've paid for it till 7:30, so please come across and have a cocktail afterwards. Tomorrow we have Brian Moynihan, CEO of Bank of America, at, is that right, on June 19. David Petraeus says here, former CIA director — I do remember he had a military career of some note as well — June 19. June 24, a former economic club board member, I think certainly remember, David Malpass from the World Bank Group. Gentlemen, thank you very much for an enlightening and it. [Applause] You

Key Themes

The 2019 session is ruthless risk management as theater: a 93% long book flattened overnight, not from fear but from respect for an unplayable tape — and the discipline to wait for a better environment. The 2020 verdict and its reversal are intellectual humility in its most public form. Both appearances run on liquidity analysis — the 18-month rate outlook in 2019, the liquidity-driven reversal in 2020 — and on asymmetric risk/reward judged at the whole-market level: when the ratio is that bad, the correct position is none at all.

Context & Significance

The Bessent pairing gives this source unusual weight: two Soros-school CIOs, separated by a generation of the same training, publicly testing one framework against a live market. Bessent's own path — from the man Druckenmiller hired into Soros Fund Management in 1991, to Key Square founder, to Treasury Secretary in 2025 — makes the 2019 conversation a document of an intellectual lineage as much as a market call.

Historically, the ECNY appearances bracket the strangest fourteen months in modern markets: the pre-COVID trade war, the crash, the fastest recovery ever engineered, and the policy regime that followed. That Druckenmiller was visibly, quotably wrong in May 2020 — and said so — is precisely why the KB treats these sessions as core curriculum: the method's credibility rests not on being right but on how being wrong is handled.