US Exceptionalism, Fiscal Reckoning, and the AI Supercycle

Summary

In May 2023 Druckenmiller returned to USC Marshall — a campus he had toured more than a decade earlier on the same warning — and delivered his most direct address on the US fiscal trajectory. The speech is built around a single ledger: official federal debt of $31 trillion is an accounting fiction that excludes future Social Security and Medicare obligations; on credible present-value estimates the real figure is $200 trillion, and the demographic storm of the 2025–2035 window makes it the defining macro problem of the next decade.

The address is equally notable for its second half. Asked about generative AI, the man who had spent three years warning about fiscal and monetary excess delivered one of the earliest unambiguous endorsements of the AI supercycle from a macro legend — "as transformative and bigger than the internet" — and disclosed the Nvidia and Microsoft positioning his family office had built the previous year. The pairing of fiscal pessimism and technological aggression in one speech is the Druckenmiller method in a single frame.

Full Text

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

on May 1st 2023.

Stanley Druckenmiller: Well, I'm delighted to be here. I, um, I came here two years ago and, um, gave a talk. But many people may not know that I was also here a little over 10 years ago. At the time, I had looked at the demographics and I had looked at what was going on with entitlements, and I got quite exercised by the fact that, um, the Baby Boomers would be turning 65 in full force in about 10 years. And I became terrified of the prospects of some kind of financial crisis in the 2025-2035 period. But it wasn't something you could wait on. So USC was part of a college tour, and I specifically wanted to energize young people, because it was young people that were suffering, in my opinion, the brunt of what I considered great, um, generational inequity. I was, I was naive enough to think I could move the needle. Um, I was clearly wrong. The only thing Donald Trump and Hillary Clinton agreed on in 2016 is we shouldn't touch entitlements. I'm probably naive to this day to think I can move the needle again, but honestly, um, I've looked at what's gone on over the last 10 years, and the situation looks so dire, I just got to give it another shot.

And what better place to start at USC. It was funny, because I went to all these colleges, and I understand why I was well received at USC and Notre Dame and, and University of North Carolina. But I also went to Bowdoin, Brown in Berkeley, and thought I'd be booed out of the room. And the students were actually quite enthusiastic afterward. But I don't know, maybe they went back to the rooms and spoke pot or something, because I, I certainly didn't start a, start a movement.

So for the younger in the audience, um, some of you might think, I'm just starting my career, why should I care about this generational issue? Let me tell you, you may not be thinking about your retirement or your health care bill when you grow. But if nothing changes, pensions tomorrow will be a fraction of what they are today, and the government won't be able to pay half of your health care bill. Think about it.

In 20 or 30 years, there will be fewer young workers, many more seniors that need our support, and we'll be starting with the highest national debt in history. If you believe you will have as comfortable as Retirement as current seniors like me and Sheldon, unfortunately, think again. And long before you retire, the horrible consequences of their, of remaining on the path we have foolishly stuck with will be borne by you and your children. The arithmetic just doesn't work out. Let me give you some facts. The share of fiscal spending going to seniors has been growing dramatically since the 60s, when Medicare and Medicaid joins Social Security as Federal entitlements. Today, we spend 6x, 6X more per senior than we do for child in this country. Think Social Security versus education. Almost 40 percent of all our taxes are spent on seniors, and the trend is just, only gets started.

So here's the demographic problem I was worried about. I'm not too good with pointers. Um, this is when I came here, and this is where we are now. What I was worried about is, after World War II and everybody came back, um, everybody had a bunch of babies, and the birth rate peaked in 1957 at 3.7. It's currently under two. So you had this moving bulge of Sheldon and I and a zillion others, and we're the Boomers. The problem is, the boomers are all turning 65 right when that line hits. And we can, we continue to grow, and we're living longer. But the current generation isn't making babies at that rate anymore. So what you

have is a huge growth in surplus of older Americans who are receiving entitlements, but you don't have the younger workers creating enough Revenue to pay for them. So if you look at this, we're just getting underway in terms of the consequences of this gray boom. In 25 years, spending on seniors — it's up there on the chart — will grow to 70 percent of all taxes. It'll be 60 percent in 20 years, it's 40 percent today. Effectively, these entitlements, they're going to be compounding away, and they're going to squeeze everything else out in terms of private and public investment.

In this context, the fiscal recklessness of the last decade, for me, given what my thoughts were, has been like, like watching a horror movie unfold. Look at this chart. You're looking at the level of indebtedness only comparable of U.S over the last hundred years. And you'll see the big bulge when we had to wave pay for World War II, and then you'll see the big bolts now. Since I came to USC and talked about this, the federal debt, which I was concerned about at the time, has grown from 15 trillion to 31 trillion.

But what is worse — and this is what really annoys me now — why no one talks about it. Right before I came over here, some Republican was on TV ranting about the debt because it's 32 trillion. Do you know that the 32 trillion assumes the federal government will never make another social security or medicare payment? Only government accounting could think that — that the government is never going to make another payment, not one, not to me, not to Sheldon, not to you guides when you get older. That's what the accounting reads. If you actually accounted for that, the debt wouldn't be 31 trillion. Credible estimates, if you present value that — 200 trillion. That's 200 trillion with a t. Um —

What makes the last 10 years particularly horrific is that we've had golden opportunities to reduce this fiscal Gap ahead of the demographic storm that I showed in the first part. You know, the, the debt load we have now, by the way, is not incomparable to the first debt load anyway, because they didn't have this demographic problem back then. So that was kind of a true debt load there. And you see how it came down dramatically right after World War II. That's because they cut the government spending, and they also raise taxes to unwind for the paying of the war. So —

Fast forward to present day, we're back up here again. And the last 10 years, we've had the opportunity to do the same. But look what we've done. In the recovery in, after the great financial crisis, when, when President Trump came in — a Republican Administration who claimed they are for spending restraint, but only, by the way, when they're out of power — the deficit never went lower than five percent of GDP. It's unheard of in a full-blown recovery of that kind of force to have a deficit. Historically, run a surplus. And —

Then post coveted, we had a booming economy where tax revenues were augmented by high inflation, nominal growth of over 10 percent, a windfall of capital gains taxes, 600 billion above average because of the tech boom. We made a hundred billion in Spectrum sales. So you had a booming economy, you had 10 percent nominal growth, you had inflation. So you might reasonably ask, how much bigger was the Surplus that year than in the tech boom in the late 90s, when we actually went into Surplus? Well, incredibly, as the search shows, we ran a deficit, and it was over a trillion dollars. Never in history has a booming economy produced a worse fiscal result. Never.

Expect this trend — and it is a trend, as you can see — to continue, absent radical policy changes. The arithmetic of your entitlements just doesn't work. So imagine asking yourself, how much taxes you need to be raised today to maintain the current level of safety net into the future, going forward. That amount, economists call the fiscal Gap. That's how much you would have to raise taxes today to keep these payments that we've promised the same in the future as they are now. Today, that measure is 7.7 percent of GDP.

When I presented here 10 years ago, it was 7.2 percent of GDP. Okay, what does seven percent, seven point seven percent fiscal gap of GDP means? Here's what it. To fix it, you would need a 40 increase, permanent tax increase today, forever. Or you'd have the other lovely choice of a 35 percent cut in fit in spending today, forever, permanent. Two Dreadful choices, and frankly they're probably still underestimated. I think USC business school students would understand: if you raise taxes or you cut spending that much, investment would invitably falter and growth would suffer considerably, making it impossible to maintain the size of our current safety net.

Now, how ironic that France — it's the second bar chart — France, the poster child for social welfare state, their fiscal Gap is less than a third of ours. And they've just been through huge political evil because he wants to do the right thing for the Next Generation. Meanwhile, in the U.S, the only thing the Democrats and the Republicans can agree on is that entitlement shouldn't be touched. And waiting only makes the problem worse, as interest rates keep building. That's the problem here. The longer you rate weight in — in addition the entitlements, the interest rates start compounding like crazy.

So here's the chart. How big would this be? Well, if interest rate for five percent, interest rates every year would be as big as the entire covert relief of 2020. The entire thing — but every year, forever, as the chart shows. Now, this is using CBO estimates. These are not mine, I didn't make them up. This is using four percent interest rates. The interest rate bill goes from eight percent of outlays now to 27 in 2050. This is a nightmare for future economic growth, investment, and productivity, and, of course, you, the future taxpayer. Let me put some numbers to that.

If you add up currently the health care spend plus Social Security Plus interest, it's 68 percent of tax revenues. By 2040, on the CBO chart, not mine, it'll be 100 of all taxes, just spending for seniors. And just the interest — by 2052, it'll be 117 percent. Taxes would be 117 percent. I'm, I'm sorry — the, the, the spending for seniors and interests alone will be 117 of revenues. So — nothing left for defense, nothing for NIH, nothing for DARPA, none of that stuff. So here's the punch line. It's time that we let go of the false pretense that cutting entitlements is a choice. It's not a choice. Either we cut them today, or we will have to cut them much more tomorrow.

As if the irresponsible Behavior wasn't enough, around 15 years ago, the FED simultaneously to start decided to start courting asset bubbles. For Those whom you who've read me, you knew I wasn't going to let the FED get away without me firing at them before the speech was over. Around the time I was here — this is two years, I'm sorry, 10 years ago — Ben Bernanke embarked on QE2, another round of a rapid expansion of the Fed's balance sheet. The chairman feared appeared like the 1930s and wanted to buy insurance to avoid deflation, by not only keeping policy rates at zero but also by reducing long-term interest rates. He assured everyone this would be a temporary measure. I quote: Monetization would require a permanent increase in the money supply to pay the government's bills through money creation. What we've, what we're doing here is temporary measure that will be reversed, so that at the end of this process the money supply will be normalized, the Fed's balance sheet will be normalized, and there will be no permanent increase either in money outstanding or on the Fed's balance sheet.

Whoops. Since then, and despite these confident words and several periods of strong growth with high inflation, which I've already shown you, the FED never felt the need to meaningfully reduce its balance sheet. The balance sheet of the FED today stands at just below 9 trillion, or 10 times as large as before the financial crisis. I repeat, 10 times. This is what he said he was going to do, normalize. This FED has enabled risk behavior from investors, banks in the government, has driven unprecedented asset bubbles in both breast and magnitude. This is a chart I don't need to explain — the tech frenzy, the crypto craze, spax, the search for yield by investors, and yes, also by Regional Banks. While it's truly been in everything bubble, nothing symbolized it more than Dogecoin, which started as a joke, literally as a joke, and reached the market cap of — anybody know? 80 billion. 80 billion for a joke, uh, crypto coin. As I have repeatedly said, central banks should be in the business of balancing, rather than fueling, asset prices or risky Behavior.

Some of the costs the feds lose policies are now apparent to all. Inflation has become part of our dinner conversations. So have Bank runs. Unfortunately, by still owning a large amount of government debt, the FED continues to create the false illusion that it can help our fiscal problems. Take the spring of 21. It was obvious then that we were not only avoiding a deep hole, but the economy is already booming, and we were developing an inflation problem. It was so obvious that even I predicted it, right here, two years ago. Bizarrely, the FED kept their foot on the gas, and Congress kept spending after it was clear the recovery was well in place and booming. Congress spent another three trillion, bringing their cover total to 5 trillion, with the FED financing over 60 percent of all issuance. Pals fed acted as a great enabler for fiscal accesses. Had it not been for one senator, Joe Manson, they would have spent another three trillion. Trying to correct the biggest mistake in FED history in the last year, they have now raised rates 500 basis points in one year.

Better late than never. Well, I guess. Still at the first kinds of trouble a month ago — Silicon Valley Bank. What do they do? In four days, Dan did all the QT progress they had made in six months. This asymmetric FED response is what feeds a lack of serious structure, structural action in DC, from both sides of the aisle. It allows the bite Administration and Congress to avoid having to address our long-term dilemma that I've presented. It helps the Republican house talk a tight budget while leaving entitlements off the table, when we all know there's not enough money unless you go after entitlements. It allows the bite Administration to astonishingly suggest the need to increase the rate of spending, and raving, label Republicans' already timid proposals as wacko. Who's the wacko, Mr President? It is hard to unders, overstate the myopic of certainty of the current policy and the predicament we find ourselves in.

To conclude, I greatly admire your generation's focus on the long-term implications, and the ability to think ahead about climate change, and your willingness to take action. I urge you to take action against a bipartisan, myopic abuse of our Seed corn at the expense of future investment and growth. American exceptionalism and Innovation have been on its display in my entire career. We led the PC Revolution, we led the development of the internet, we led the move to mobile, we led the move to Cloud, we led the move to in blockchain, and now we're leading in generative AI. Indeed, the cover story The Economist two weeks ago, Riding High, documented the astonishing success of American capitalism the last 30 years. Further delay in addressing the fiscal Gap threatens the future of us — not Riding High, but rather sinking into malaise, Decay, and the end of the American dream. It will embolden autocracies in places like China and Russia, and tragically risks a lack of wealth to make sufficient Investments to address existential crises like climate change, and a lack of growth through Ford programs for the least well-off among us. Thank you.

Moderator: Yeah, I'll moderate it a little bit. Everybody in a good mood now? Tell us how you really feel, Stan. Um, so how much time do we have, professor? Okay, so we have about a little less than 45 minutes. I'll kick us off a little bit, and then I'll make sure that the graduating class is time to ask questions, the board has time to ask questions, that everybody has some tied and ask questions. So I guess the easiest question to start with would be, can you connect this challenging of U.S exceptionalism to your current Investment Portfolio and how you're thinking about things? Um —

Stanley Druckenmiller: Not with the frequency I trade. But it's, it's in the background, and it's something I'm thinking about, um, in terms of, as opposed to trades, but Investments. Yeah, it has, it has huge implications. Um, I'm short the dollar. There's a number of reasons I'm short the dollar. But this certainly doesn't feel me, make me feel particularly good about it, when France is acting more responsible on an existential problem, a problem for our country, than we are. Um, but yeah, the whole thing, the whole thing bothers me.

Moderator: Does it bother you to the extent where you would say, uh, less clear about the dollar as the reserve currency of the world going forward?

Stanley Druckenmiller: Yeah, it's one of a number of things. But look, the, the dollar thesis — and this is not like some big leverage play I made in the past, so please don't go out and short the dollar tomorrow morning — the dollar thesis is pretty simple. We had 13 trillion dollars come in here the last, I don't know, 10 or 15 years. Currency movements tend to take place in big waves and big long ways. It came in here partly because our tech companies were dominating, a lot of foreign investors invested in Sovereign wealth funds and invested in Fang. Then we tighten monetary policy earlier and more dramatically than, I'd say, our G7 competitors did. And it looked to me like we're coming to the end of that process, and they still have further to go. But yeah, I mean, all this argument over the, over the debt ceiling, to me is like — I don't know, you're sitting out on the pier in Santa Monica and you see a 30-foot wave, and you're worried about what the 30-foot wave is going to do to the pier, and there's, like, a 200 foot tsunami 10 miles out. But all we're talking about is the 30-foot wave. And —

I think also, why did we even get Reserve currency status? Not just rule of law. We had better fiscal Behavior, as you saw there, for 30 or 40 years. Volcker was Miracle Man in terms of lower inflation rate. I mean, believe it or not, we have a higher inflation right now than Brazil. So when Lula goes over and he says to Xi Jinping, I don't understand why we have to do these transactions and dollars, why can't we do Renee — that would not have been a reasonable question 30 years ago. Given our Behavior, I think it's now become a reasonable question. You know, this thing about the curse, curse of resources under the ground —

We're almost getting hung by own batard here. We, since we are the reserve currency, we're a waiting, we're getting away with stuff that the market would have checked on. Look what happened when Liz truss tried to do a spending program in, in Britain that was nothing like ours. You know, you had a collapse in the pound, she got thrown out of office. So it, it fits in some Reuben, it's part of a broader thesis. But yeah, it's, it will continually sort of Detroit my investment strategy going forward. It's such a big picture macro play.

Moderator: I guess I want to talk a little bit about your strategy through time. And looking in today's world, do you feel like it's a harder Market to be a successful macro investor compared to previous periods in your career? Foreign.

Stanley Druckenmiller: Well, currently, yes, because I like to try and come up with economic forecast for the future. And I've been had my misses, but I've been a lot better than random at it. Uh, and, and my process is trying to look at a lot of history and try and equate it with what's going on now. And I've never seen a road map like this. I mean, we were buying 120 billion bonds a month all the way until inflation went to 7.7 percent. We've had an 11-year asset bubble, and now the fedjacked rates up 500 points. I have some intuition, but I don't really have any road map. Um, having said that, um, you know, I'm sorry this is on tape — I make, I make, I make my money in chaos. I've always made more money in equity bear markets than I have in Bull markets, because that's when macro goes crazy. If I wasn't so worried about the country, I'd be salivating over the opportunities that's going to set up. I've been talking about 2025 to 2035

for better than 15 years. And last time I checked, this is 2023, so we're getting into the time period. I didn't mention that CBO estimate for 2050 with a four percent interest rate — it had an 11 deficit. I mean, I'll tell you right now, if we have an 11 deficit, uh, we're not going to be the reserve currency. We're not. Um, but you can already see things chipping away. First of all, most of the people that own our assets abroad, other than the Japan, they hate us. China's got a zillion treasuries, Saudi Arabia — and, you know, Biden called the guy to Pariah — so I don't see them storing their wealth in dollars. And, a lot of my investment process is intuitive, but I could just kind of feel it chipping away into some kind of multi-polar world, as opposed to just this dominating. Could be wrong, hope I'm wrong. It'd be a hell of a thing to lose the, uh —

Moderator: If I go back to kind of the student presentations, some of the takeaways that they had were about position sizing. Um, you're kind of famous for your, for your thoughts on, uh, swinging at kind of fat pitches and, when you see something you like, putting meaningful amounts of money behind it. Is it fair to say that, in an environment like this that you would describe as more challenging, that you slow down a little bit, or take, take some speed off that? Or how do you think about how you place your bets in, in today's world?

Stanley Druckenmiller: Well, luckily, I don't have any clients, so I don't have performance foma. Um, and you've described it very well. I, I wait for fat pitches, and then I play really big. And if I'm wrong, constantly reevaluate. One of the great things about playing big, you don't get lazy about believing your own, you know what. Uh, so right now, that's why the dollar — you know, it's a thesis I have, but it's not a fat pitch. I've seen a lot of fat pitches in my career. This thing is so complicated, I just want to stay alive, you know, financially, until the chaos comes, because it's coming, given our Behavior.

Moderator: Let me ask one more thing, and then I'll, I'll open up a little bit. But for the sake of the room, maybe those that don't know your story as well — what's the fattest pitch that you swung at that worked out well?

Stanley Druckenmiller: Can I name two? Go for it. Okay, so the first was when the Wall came down in Germany. Um, I knew the history of Germany and I knew the history of German culture, and, frankly, the, the hyperinflation, the Weimar Republic, is the reason Hitler was able to come to power. And so, ever since World War II, the Germans have not only been embarrassed, but they've been obsessed with inflation, and they had the strongest Central Bank in the world.

So when the Wall came down in Germany — I'll never forget — you like to remember your win, should I kind of like — I've had plenty of losses, you try and wipe your mind. But, um, the Deutsche Mark got killed for two days, because the theory was the osmark, which was the East German currency, was going to pollute the Deutsche Mark. But I kind of knew German culture — these people really like, they got a great work ethic, they're rejoining the news. And I thought the economy was going to Boom, and I knew exactly what the bonus bank would do — they would just keep raising rates to make sure they didn't get inflation. That's what happened. And out of that, I had a big win shorting the Italian lira, which broke, Swedish Kroner, which broke, and obviously the British pound, which was the easiest of all, because in Britain they desperately needed lower rates, because they were Anglo-Saxon housing driven economy and they were going down while the Germans were going up. So that, that thing just couldn't hold over time. The, the second one was —

Um, I bought the exact — well, it's a long story. But, um, I bought the tech boom pretty well after having missed it in mid-99, made a fortune in tech stocks, sold them all out, like, 10 days into the year, and then watched everybody else making money. And then did something I don't want any young person in this room ever to do — I, like, acted totally emotionally. I couldn't stand it that the market was going up and all these guys were making three percent a day. I, I think I missed the top by about a half an hour at Soros. So I plow in, I lose, like, three billion dollars in four months. I'm absolutely devastated. I can't sleep. I've already told him I'm quitting. I send the Duquesne investors a letter, and I say, look, I'm, I'm going on a sabbatical, I don't know where to come back. If you want to take all your money out — but if you take it out, I might not let you back in. That was good, because I had 200, 200 investors and 199 stayed. I came back

in September. I didn't read a newspaper, I made sure I didn't follow Market. And the NASDAQ had rallied back almost to the high, and the s p had rally back. But the dollar had rallied, which is generally negative for equities. Um, oil had rallied, which was negative for equities. So I called up my friend Ed Hyman and I said, what is going on? Why is the market rallying? And, um, I said, oils up, interest rates are up, dollars up. I called around to my clients — I had a lot of small businessmen's client, I didn't have many big institutional investors — all of them said their business is going like this. Greenspan had a tightening directive on. So I was convinced, with the anecdotal information, with this, that the economy is going to tank. And I put 350 percent of my Fund in 10-year equivalents. I was down 18 of the time. I thought I was going to have my first down year, and I made 42 percent in the fourth quarter. It was the biggest layup. I, I mean, I couldn't believe — fed funds were six and a half and two years for 604, not that I would remember. But I thought they might go to two. They went to one. So those, those are fat pitches. We don't have anything like that today. Well, maybe we do, but I'm not seeing it.

Moderator: Awesome. I'll, uh, I'll open up again. I think the, a little preference to the board, and then any members of the graduating class.

Interviewer: A year, two years ago — does anyone has, anyone Advanced that further, or has that been debunked?

Stanley Druckenmiller: I think when the money supply grew 42 percent year over year, and, uh, in 21, and inflation did go to nine percent, that was the end of that theory that you could print all the money and keep rates at zero and not have any consequences. It's funny, because the inflation thing has gotten the notice it should have. I don't think the asset bubble has. What scares me — there's a book, if you guys have time to read, I highly recommend, call the price of time by Edward Chancellor. It documents all the asset bubbles the last 500 years, and invariably they're followed by the worst economic outcomes, because asset bubbles create student Behavior — people like me buying at the top and the 99 or 2000 bubble — people lose their senses when you force them out the risk curve. And this one's been 11 years, and it's been broad, as you can see up there.

I'm just really worried that there's more bodies out there. I don't know what the bodies are. I knew what the bodies were in 07. I didn't know it was going to be Silicon Valley. But I, I don't think we've seen the last of it. When you give free money for a long period of time, people do stupid things. One of the crazy things in that book is, he keeps referencing the 1300s and 1500s, when every time illustrates go below two percent, things go wild. Yeah. And they didn't just go to one, two percent. I think 40 percent of the money in the world was negative rights. Um, and we were buying bonds, so effectively our rates were even more negative. I'm impressed that you read the book, Reuben. It's good. But I like fixed income. It's a tour de force. Please.

Interviewer: I thank you for taking, uh — I've got three quick questions. Number one, have you had a chance to read Ray dalio's missive about war with China, especially over Taiwan, your thoughts on that? Number two, California — if you could concentrate, are we leading, are we way behind, obviously, in terms of entitlement and then entitlements, and if California is a good place to live in the future? And then number three, who are the parties going to be in the presidential election, and who is going to win? [Laughter] Um —

Stanley Druckenmiller: I'm not a big Ray dalio disciple. I'll give you my view on China and with respect to Taiwan. Um, the mitigating factors Mutual self-destruction, in the sense that I think she knows that if he takes Taiwan, we can take out every semiconductor Fab the TSM does in 30 minutes. And we will. He knows that. There's a great National sentiment in China to take Taiwan. I remember I spoke at chinwa 30 years ago, and I said, who thinks you should take Taiwan? And every student raise their hand, like, instantly. But I just don't see it happening in the next three to five years. I'm long and video, I'm terrified it is going to happen. If it does, I'm going to lose a lot of money that day. Well, I might make it somewhere else.

California. But the problem is, I don't — I'm a little worried about the Chinese economy going forward, just because the reason a lot of the recoveries became semi-capitalist, and she has proved himself to him to be a maoist. And there's only room for one Monopoly in China, and that's him. So the more economic trouble you get in, it's more likely that he takes Taiwan, because that's when dictators do their thing, when they're having economic problems. Third question was, who's going to be, who's going to run calcium, and then president?

Oh, California's screwed. I mean — tell him. It's, it's just amazing. It's the most beautiful state, with, you know, you got snow on mountains, you get this beautiful coast. And I remember, when I first got in the business, just follow California, because everything they did — this was back in the Reagan years — that would become a trend. Uh, Governor hairdo, he's just — I mean, I just, I can't believe what's going on here. Um, and it's so sad. I have a home here I love — I don't live here. But, um, I think California is kind of the eye of the storm. I don't know why they keep re-electing the people they do. But hopefully it'll get bad enough, but not so bad, that the electorate will move the other way before it becomes existential. The third question was —

I, I don't know. I'm so emotional on this. I, I just — I will — I mean, we got 340 million people in this country, and we're going to have Biden versus, uh, Trump on the menu? I mean, it's, it's just unbelievable. I mean, 50 people a day, 10 times as confident as either one of them. Um, I'm — it looks like the no Democrat is going to challenge Biden, which I don't understand. I guess he wouldn't debate them, so maybe he wouldn't reveal his issues. Trump has — I, I can't — I, it's being recorded, don't forget. It's okay, he knows what I said about him. Um, I don't know how to handicap that one. He's got a hardcore 25 to 30 percent of the Republican voters, and enough people run out against them, maybe the math works that way. Maybe he did something really criminal in Mar-A-Lago that we don't know about. The thing in New York — I'm such a cynic, I think they probably did that because they're Democrats, to raise his ratings with the Republican, because that is the dumbest suit I've ever seen. It, it has no — it just doesn't have any Merit to it. But I don't know. I, I think if it's Biden versus Trump, Joe manchin will run. And I don't think he'll win, but I'm not smart enough to know which one of those two he's going to take. I'm just hoping it's neither Biden nor Trump. But that's not an answer, but it's the best I got.

Interviewer: So, how are you thinking through this whole Financial — I'm wondering how you're thinking through the whole financial thing with signature, Fidel first, first Republic, silicon. I've never seen asset issues pop up the way that they have so quickly. I even, in the 0708, you could kind of see AIG coming, you can kind of see Lehman, bear Stearns. I don't know what's coming next. And it feels like if something isn't done, we're going to end up with five or ten Mega financial institutions. There's got to be some ramification of that in the markets. But I — I bet you knew something was coming, but you didn't know what was coming.

Stanley Druckenmiller: What we do know — and this is why the situation is potentially very toxic — is that there are hundreds of banks, and supposedly Bank America, that if you mark their assets to Market, they have no capital. And we haven't even gotten into the loan losses. You and I have seen a lot of Bank runs and that kind of stuff in our time, but it's always loans, credit — it's never your balance sheet. By the way, what's the irony of that? The reason they had all this stuff is Dodd-Frank changed the risk weighted assets to treasuries didn't count against your capital. But I, I worry — the median Bank in the United States has 43 percent of their loans in real estate. And with covid, particularly on the coast, nobody goes to the office anymore. So you got this toxic situation there. I don't know what the answer again. But again, to the fat pitch scenario, I know the market acts great, I know everybody like me hates it — which means it usually goes up when everybody hates it — but I don't need to play. I mean, there's got to be more dead bodies out there

that haven't revealed themselves. And you notice how all these political leaders — and I guess it's their job — and the treasury trajectory, Jamie Diamond today: this is nothing like 0809. Excuse me, I don't remember any of you predicting 0809 until after the fact. And, modestly, I made four billion dollars because I predicted the whole financial crisis. And they're now re-remembering, oh, they kind of knew all along Banks weren't well capitalized. So look, my guess is this is not going to be bad at 0809. But the way they cavalierly dismiss it — back to Edward Chancellor — you can't just say, we had the biggest, broadest asset bubble in 500 years, they all have a problem in the honor two percent, and then you Lop on 500 basis points in a year, and think that there's a hundred percent chance this is not going to get really bad.

And then they go — everybody on TV, well, we have no recession or soft Landing. We've had three soft Landings since 1950. Three. And they were all preceded by perfectly timed feta hikes before you got the inflation taking off. I mean, it's possible. I'm not sure right now — probably should be, the way I'm talking. But, but, I mean, to make a bet that the equity markets go, you know, not in, in the economy are not going to have a problem — if you're a risk award guy waiting for a fat pitch, this is like the thinnest thing. I was like Sandy Koufax, and he's got, you know, oh and two, one one thing.

Moderator: I feel like is worth pointing out to the class — you just presented earlier — is how you can manage concentrated portfolios with concentrated ideas, and still have these elements of humility that you have. Like, you're willing to say, I don't know.

Stanley Druckenmiller: Well, I also got a lot of losses I've had over my years. I got scars all over them. But here's one you can actually see. So, you know, we were talking earlier — I, I'm not as good of an investor as I was in my 30s and 40s. I can predict better, but I don't pull the trigger the way I was when I was young. And I only hire people in their 20s. Um, you know, once you get the scars I have, it, it wears on you. So the humility is well earned. But yeah, you've got to have humility. If somebody asks me, what do you, what do you think made you so successful? My first answer would be having an open mind. I never get wedded to a position. I've had positions where I was sure I was going to hold them two years, and a week later I don't — I didn't have the position, I was short. Because conditions change it — conditions change, you have to move immediately. That was true 20 years ago. It's 10x now, with the internet and everything. So —

This interview I did in with a Norway guy, he asked me about analysis and all this. I said, we, we — if I get an instinct, we do a big investment, then we study it. And if the, and if the study turns out wrong, I get rid of it. But if you wait around — there was a great one this morning, somebody talked about something they had went from 50 to 63 or wherever — if you wait around in today's world — I'm not that smart. If I figured it out with my instinct, somebody else might figure it out while I'm doing my analysis. I'm not saying I don't do my work — I do. But if I got a strong Instinct, I invest, and then I investigate. And then, if the investigation turns out, I get out.

Moderator: So can I ask an AI question now? Yeah. So what are your thoughts on generative AI?

Stanley Druckenmiller: I think it has the potential to be as transformative and bigger — and bigger than the internet. And I'm not a fad buyer, you know — quite the contrary, to see opposite. But this, the implications of this thing are just mind-boggling. They're for macro, in terms of disinflation, in terms of productivity. It turns out the internet didn't turn out to be very productive, because everybody's on their phone, you know, for two hours a day not doing work. This, this stuff, this stuff is just amazing. It could be incredibly disruptive. If I was a young investor, this is going to create change, and change is what creates security price. So AI, I think it's for real, B of things to be huge. I haven't decided yet whether it's going to be the model Builders or on the application Level. We kind of think it's going to be application Level. But to humility —

We're not sure. So far, the only thing we really did — got lucky — we bought a lot of Nvidia last year, because the one thing that looked clear is, there's like 10 of them are going to try and build all this stuff, and Nvidia has a monopoly on the chips. No one else makes the chips needed to build this stuff. And then we bought a lot of Microsoft, because I think he's going to run it through the whole Office 365 product. And obviously Azure is going to — it's going to create a lot of demand for power through Azure. They both run so much, I haven't sold them. But I don't know. I, I think it's going to be huge, and we're spending a whole lot of time thinking about it and working on it. And luckily, I have younger Partners who know what they're talking about. I'm just talking a good game up here.

Moderator: You talked about you — you've described a situation where U.S acceptance leadership is at risk. But you also mention, you know, the challenges in China with slowing economic growth. If you look across the world, if you're projecting forward 2040, 2050, if the US is not leading, if China is not leading, who is? Is it Europe? Is it South America? Is it Africa, the Middle East?

Stanley Druckenmiller: I don't know whether there's going to be a leader. Um, I think it might be multi-polar. It's very clear that MBS is trying to create Saudi Arabia as dominant and control that region. It didn't get much press, but he greeted the guy, the prime minister of Egypt, at the airport, and he took him to the airport. I thought that was very different. They made a deal with Iran, it looks like. He's trying to create a Mideast block with, with them, the leader of that block. Um, your Europe — it's, it's hard to ever get really bullish on Europe. But I actually like the Euro, because they already are the Euro, and we're, like, becoming the Euro. And, and, and currency prices are relative. So I think you could have changed her. I don't know there were, there will — I don't know whether will be a leader. I'm hoping it's the United States. But the reason I started screaming about this stuff was 2011, is because I thought we're on the clock. And this is why I talk today. Because we, we had a chance to do a lot the last 10 years. Well, we've done a lot — we've spent another 10 trillion. And the, the party in power wants to spend more. And I'm not sure the Republicans won't either, if they get in power.

Interviewer: You've talked in the past about, uh, treasury market being a nice indicator and signal for you over your career, and that it's been distorted over the past cycle, which clearly it has. I'm curious if you think that signal is back and the markets, with the rate increases, and, and what it's telling you today.

Stanley Druckenmiller: Yeah, I'm paying a lot, I'm paying a lot of attention to it, now that we don't — now that the FED is not adjusting their balance sheet. Um, I should have mentioned that in my little Litany of things. We have the most inverted yield curve in history. In the last 11 times the yield curve inverted less than this, we had a recession. So again, back to the odds. But yeah, I'm paying a lot of attention to the treasury market. And, you know, I think it's, I think it's predicting, uh, a bad economy. Um, two years ago — remember, you called me in Sun Valley — we couldn't figure it out. 10 years gone down to 115 basis points, and it was, we were going, what is going on here? Well, the Fed was buying all the treasuries. So I don't want to sit here and — because I agree with her, don't agree with it. I'm trying to be true to myself. And the treasury Market's been a good indicator, and it's definitely predicting economic Darkness.

Interviewer: So with that, what's, um, what's wrong with sticking all your money in short-term bonds yielding five percent?

Stanley Druckenmiller: Nothing. As long as you're willing, um, if you get a hard Landing, to move it into risk. Yes, it's a good strategy. And you don't get a risk gas if you don't get a hard landing, something will come along. But if you don't know — I'm not going to do it. I'm just — you don't need to go out five years. Oh, you didn't say five years, no, five percent. You don't, you don't — that's, that's a good place to park your money. I will say, don't get seduced by it. When I started Duquesne, five years she reeled it 15 percent, and you were supposed to buy equities. I don't think that's the situation today. I mean, the Market's 19 and a half times. If I'm right on the economy, it's probably 40 times or something. Um, it's just — I think it's a fine place to park your money.

Interviewer: The public, all that is there — what risk do you see in, in people pulling their money out of regional Banks and concentrating them in, you know, significant institutional Banks? Uh, and what kind of person does that have for the future?

Stanley Druckenmiller: Well, I, I think it's happening. I had a guy called me up three weeks ago. He has money in Zion bank, and he said, what do you think of Zions Bank? Do you think they're going to go under? I said, no. But if there's a one in a thousand chance you're going on there, you should move your money to JP Morgan. It's just so — anybody who's a rational thinker, we're not going to sit here and be patriotic. Just the, the inconvenience if they go under. I think the problem with the banks — I don't think we have to worry about — well, I'm not worried about them going under. I'm worried about, how are they ever going to make any money? Um, because they're not going to get the deposits — I'm talking about the regional Banks. I don't think the stock prices are — I'm more, more about their stock prices than them Bringing Down the whole system. But can you imagine how bad First Republic was, that this government let JP Morgan take it over? I mean, the one thing they did not want — which is why Silicon Valley got so screwed up — is to have the poster child or the banking industry that Elizabeth Warren is going to have a heart attack over. So that thing had to be really bad.

Interviewer: Thank you for the presentation. Uh, very eye-opening and very scary. I'm a assist student, I do the global Equity Fund. I do scary — well, yes, yeah, well — my question is, a lot of us, I'm sure we see that. And my buddy here at least Mike, best fixed income guy here in Sif, we agree that this is very scary. And he looked at me and said, hey Hector, what should we do about it? And I said, that's a good question, Mike. I don't think Mr Joker Miller said that. So is there a to-do list of things that us, as newly minted mbas starting two weeks from now, actions we could take to help with the situation? It's scary, we don't want it to happen. What can we do to prevent it? Thank you. Um —

Stanley Druckenmiller: I would like to see young people use their political voice. That's why I started this. I don't mean to pick on Bernie Sanders, but I'm going to. Why are you all so in love with Bernie Sanders? The guy wants to raise social security for current seniors. By the way, you guys are not young people — you're future seniors. This is, this is what I don't get. This, this line about, we can't cut entitlements for seniors — you're screwing seniors, you're just screwing the future seniors. Why do they get a dollar and you get zero? Can we give them, like, 85 cents and you get 15? But the first thing you can do is get out there. Look, it's political suicide to take on entitlements. But his political suicide because the old geezers in my generation, we make sure it's political suicide. You guys should be on top of this the way you've been so pressured on climate change. That's 40 years ahead. This is only 15 years ahead. Use your voice, get out there. This is such a no-brainer, policy wise. We're going to go down the drink if we don't change this. And it's changeable. Sorry for the Ram.

Moderator: Uh, oh, go ahead.

Interviewer: That leads me to one of my questions. First, a fellow pittsburgher — yes, please. We had a good draft. Yes, it's wonderful to see one of us succeed as you have. But I grew up low income in Castle Shannon. And so my first question to you is about the entitlements. My gut tells me that you and Mr stone and a few others here don't need to get Social Security, correct? How do you suggest cutting the entitlements, because my people still need them? It's the first question. Second question, for all of us though here who love investing: how are you shorting the dollar, against the basket of currencies or a particular currency? And the last question is, can you explain to us, we've had three of the four largest bank collapses in the last two months in U.S history, and the vix is at 16.

Stanley Druckenmiller: I think that — I'll start with the last one. I think the vix is it 16 because, since the bank collapsed, the FED has done 400 billion Inc put on their balance sheet. I, I literally think it's that simple. And that's stupid. Um, so 400 billion of liquidities come in, I'm actually dumb enough to think the market is higher now than it would have been if Silicon Valley hadn't happened. It's got a lot of danger signals, though. I think I read today that's, or this weekend, seven stocks are 85 percent of the gain in the s p this year. I'm almost old enough to remember — but I have to say, I'm old enough to have studied this whole nifty fifty thing. It feels like that, in terms of security.

The first thing we should do is means test it. I'm sorry — for the people who need it, they can have it. But we can at least get rid of the colas. They got a 9.6 percent increase last year. Do you know any working man that got a 9.6 increase last year? So again, I'm sorry — you know, I'm a horrible person for saying it — but they should get 90 percent of the loaf instead of 100, and just deal with and adjust their lifestyle. Because future seniors, the way it's set up, they're not, they're not going to get 90 cents, they're going to get, like, 50 cents of Health Care and zero of Social Security. We've got to start somewhere. Where I would start right now as means testing, so Sheldon and I don't get it. I didn't know where I'm going to get it. Do you know whether you get it? I know I'm eligible. I hope I'm not taking it. I don't, I don't even know. But — but means tested, by all means. But I would — First Step would be eliminate the cola increases. You know what these new grads would do for five grand a month?

Yeah. When I used to run around, I used to do it with Jeff Canada and, and with — so I could show the left that this wasn't some right lane conspiracy. And Ken langoning, langone used to announce in public, he gets 4, 800 a month, and people are just gasping. It's just — and he would use the analogy: it's pretty good if you buy fire insurance and there's no fire, you don't get your money back. These people say, I put the money in. Well, there's insurance — that's what the whole social security thing started as. But then it became an entitlement. So I feel for those people. I think it's terrible. But if this happens, believe me, they're going to be more screwed than any of us.

Interviewer: And how are you sure?

Stanley Druckenmiller: Well, currently, I have gold, which I consider a currency. I have the euro. I've been in the Mexican peso in the Brazil. This was the weirdest moment ever, like a year and a half ago. My Argentina partner sitting in his office, and he's, he's on a zoom call, and there's, like, 20 Central Bank heads there, and they're all Latin Americans, and they're all complaining about how crazy the FED policy is with zero rates. I mean, with the world I grew up in, this is, like, crazy. Uh, the Latin American central banks are now much more responsible in the United States Central Bank. Well, at least until a year ago. Uh, what else do I have? I've got some others. But, uh, the Euro, the euro is — oh, I have Australia, which could be a big mistake, but that's kind of on the reopening in China, and if Powell pivots when we get a hard Landing. But the euro in gold and, and the two Latin American currencies are my big one right now.

Moderator: I'll take one last question, or maybe two. Sorry, Chris, one second.

Interviewer: What is your outlook for inflation? Do you think that the FED has either the willingness or ability to tackle it, given how quickly they —

Stanley Druckenmiller: I don't know if you were here two years ago. I had a lot of conviction. I don't have — this is, this is really complicated, and I don't — I've never seen this movie. If you put a gun to my head instead of going to die if I'm not wrong — but I don't need to do that, so I'm not playing. I would say it's going to come down to two and a half or three percent over the next year, a year and a half. Powell's going to panic, because it's coming down because of hard landing, and then it'll go back up to five or six, because he won't have squashed it. He let the genie out of the bottle. But I literally don't know. I, I could literally see, in a crazy hard Landing, deflation after NASA bubble, or I could see eight percent inflation. Very useful answer. I'm sorry. But it's something.

Interviewer: And so I got a quick follow-on. Since you mentioned the, the Australia and the China reopening — just your, your view on Commodities broadly, especially if, you know, some of the inflation, they're not able to —

Stanley Druckenmiller: I'm long oil. I've lost my butt in the last four weeks. I haven't taken it off, because I think the Saudis really need it above 70, 75, and if the reopening thing works, you could go to 100. We're gonna, we're now in a state of drawing balances for the next seven months. But, by the way, everybody knows sudden, it keeps going down and I keep losing money. But this is one of those cases — I don't use stop losses, but if the fundamentals change, I'll get out. But the fundamentals still tell me I'm supposed to be long. And I'm long gold and copper. Copper is complicated. Copper is the wildest bullish Supply demand situation ever seen. But if you get a hard Landing, I'm not sure I want to own it. But I definitely want to own it long term, because it's, the inventories are crazy, and this whole EB thing is going to happen.

Interviewer: Sorry, thank you very much for being here. Um, to what extent, if any, do things like Fusion or generated by AI — the productivity increases — help mitigate some of the risks that you've outlined?

Stanley Druckenmiller: Could be huge. Could be. Got to be monitored. Got to be really open-minded. I'm really wrestling with the AI thing. I'm guessing the AI roll out — because you got to spend so much money first, and then you got, like, my daughter works at palantir, they can't use it because of security. I'm guessing the big AI, if there is a big deflate, disinflationary — I'm guessing it's two years away. But I don't even know, because some of this stuff is so active now. Somebody called me yesterday and said, a 99.6 percent, gpt4 can do your taxes. Maybe not — you wouldn't mind children. But, like — um, good.

Moderator: So I thought we could end with a question, maybe about money, since there we've been talking about — well, a different type. Um, they're, many of them are graduating, probably will go make salaries they haven't seen before, summer price to looking for jobs. And I thought, with you here, you're a multi-billionaire — can you talk about what wealth has done to you, and how you think about it? If you think you're happier having immense wealth, and how you think graduates should think about money?

Stanley Druckenmiller: Well, my grandmother said, I'd rather be rich but poor. And we didn't have any money. But, um, that, that's a joke. Look, I'm a really happy person. I don't — it's not because of the amount of money I have. But part of having earned success has given me that happiness. And you worry about, if you have money, about screwing up your children with, with inheriting too much money, because they won't enjoy earn success. And it's, it's harder to raise children with money. I became — no credit for it, I don't know how she did it, but I've got to talk about my wife — I've got three overachievers who are very happy, and they're working hard. It enables me to do philanthropy stuff I'd never be able to do. And I don't, like, give back or feel an obligation to philanthropy — I love giving money away, because it gives me joy to support it, Jeff Canada, and watch it happen. Or to watch the changes that have happened because the EDF in the environment. It gives me joy. I'm not, like, giving back or feeling guilty or anything. Like, I feel it's a privilege. And I think anybody with my out of money would do it. And those who don't — I don't think, oh, what a bad person. I think they're really missing the boat. What are they going to, roll around they're coffin with it? But no, I look —

The thing that makes me the happiness — and this is what I would really tell the young graduates — is I love my job, I'm addicted to it. So you've got to find your passion in life. And it may not be Finance — just because you're a business graduate doesn't mean you should, this is the thing you're going to love in life. I started as an English major. And particularly in this business, if you don't love it, you're going to lose. Because you're, every time you buy something, somebody else is selling it. You better know what you're doing. And if you've got Workaholics in this industry — and you will, because some people, it just, they get the bug. So don't think money is going to make you happy. I think doing something that you're passionate about. But yeah, I'd rather have it than not.

Moderator: All right, an honor for us to have you here. Thank you, thank you.

This ends the keynote recording. Thank you.

Key Themes

The speech braids two strands of the late Druckenmiller framework. The fiscal ledger is the endgame in its mature, post-hiking-cycle form: no longer a critique of zero rates but of compounding entitlements and debt service. The AI positioning is the 18-month rule and asymmetric risk/reward applied to a genuine productivity shock — visualizing the world two years forward and sizing into it before the data confirms. Both strands are top-down macro: demographics and chip monopolies read from the same liquidity-first, structure-first lens.

Context & Significance

The USC address closes a loop that opened at Lost Tree. There, the doctrine was craft: liquidity, concentration, the 18-month horizon. Here the doctrine is applied to the two largest subjects an investor can hold — the solvency of the United States and the largest technology shock since the internet — with the same analytical grammar. It is also the fullest public accounting of why the great bear of 2021–22 became a holder of AI equities in 2023: the fiscal and monetary warnings were never perma-bear ideology but regime analysis, and regime analysis cuts both ways.

For the KB, the speech is the bridge document between the macro critique (The Endgame, the WSJ op-ed) and the forward-looking method (Talks at GS, Norges Bank): pessimism about the ledger, aggression about the future, and no contradiction between them.