Legendary billionaire investor Stanley Druckenmiller, whose hedge fund has averaged 30% annual returns, dropped a bombshell when he told participants at the annual Sohn Investment Conference that the time has come to sell stocks and buy gold.
Druckenmiller has maintained one of the best long-term track records in money management. His hedge fund’s track record is unmatched, generating annualized returns of 30 percent for 25 years, from 1986 to 2010.
The Bull Market in Equities is Over
Druckenmiller noted that the bull market in stocks has reached its tipping point with price earnings ratios reaching unsustainable levels. Companies are spending their funds on share buybacks instead of R&D and other productive investments, Druckenmiller warns. “The bull market is exhausting itself,” he said. He went on to blame the Federal Reserve for the deteriorating economic environment by keeping interest rates too low for too long.
The U.S. economy seems to be looking good on paper with the U.S. unemployment rate still under six percent and interest rates remaining low, however economists are warning that the stock market is lurching toward a crash. In fact, billionaires like George Soros, John Paulson, and Warren Buffett are dumping their stocks.
Traditionally, the stock market is meant to reflect the state of the economy but that may not be the case now. Looking deeper into the U.S. economy, wages are stagnant while personal debt levels are trending higher.
Druckenmiller criticized the Federal Reserve for contributing to underperforming corporate statements by placing the emphasis on borrowing more from future earnings, instead of generating real income.
Druckenmiller is Bullish on Gold
He told attendees at the conference that he is currently investing the vast majority of his portfolio in gold because of his bearish outlook for equities, the negative correlation between equities and gold as well as the growing trend to view gold as safe haven from risk.
Since the beginning of 2016, gold futures have climbed 20 percent. This is precious metal’s best performance since 2006. This trend has been driven by speculation that the Fed will not continue tightening its monetary policy due to a global slowdown in economic activity.
With one of the most successful investors going full in on gold, it would be safe to say that the outlook for the yellow metal is bullish.