Druckenmiller Piled Into Treasuries on Trump's China Tweet

(Bloomberg) -- Billionaire Stan Druckenmiller said he could see the Fed funds rate going to zero in the next 18 months if the economy softens and that he recently piled into Treasuries as the U.S. trade war with China escalated.

“When the Trump tweet went out, I went from 93% invested to net flat, and bought a bunch of Treasuries,” Druckenmiller said Monday evening, referring to the May 5 tweet from President Donald Trump threatening an increase in tariffs on China. “Not because I’m trying to make money, I just don’t want to play in this environment.”

Druckenmiller, who was interviewed by Key Square Capital Management founder Scott Bessent at The Economic Club of New York, said at the moment he doesn’t see Trump giving China room for negotiation because the president sees tariffs as a winning strategy for the 2020 election. That could change if the economy and markets get weaker, he said.

While Druckenmiller wouldn’t say whether the U.S. is headed for a recession, he said he sees many warning signs. He’s concerned that Trump may have broken a fragile economy going into the next election and assumes he won’t be re-elected in 2020.

While Treasuries have become less interesting amid their rally in recent days, Druckenmiller says they’re “the best game in town” if the economy deteriorates. “Gold’s not bad either,” he added.

In December, Druckenmiller warned that trading conditions could worsen, and that while the indicators he historically used were not red yet -- they were decidedly amber. He also urged the Federal Reserve not to raise rates in December. The central bank did not follow his advice, though it has kept interest rates steady so far this year.

Druckenmiller, 65, has a net worth of $5.1 billion, according to the Bloomberg Billionaires Index. The former chief strategist for George Soros decided to convert his hedge fund into Duquesne Family Office in 2010. His long-term track record, making returns of about 30% a year over three decades, established him as one of the world’s top money mangers.

Here are other highlights from the Druckenmiller interview:

• At this point, it would “be crazy” to try to remove Trump through impeachment or the 25th amendment, because it would take too long and “the country would go through hell.”
• The hedge fund industry is in need of a major shake-out, he said. “There’s probably five to 10 people, women and men, who are worth more than their fees now,” he said. “There are still going to be superstars, but we need to get back to maybe 200 or 300 from 4,000” funds.
• He wouldn’t be short or long Bitcoin, as he doesn’t understand why it’s a store of value. “I don’t think I’m a neanderthal, which is what I’ve been called when I’ve said I didn’t want to own Bitcoin.”

To contact the reporters on this story: Katherine Burton in New York at kburton@bloomberg.net;Katia Porzecanski in New York at kporzecansk1@bloomberg.net

To contact the editors responsible for this story: Alan Mirabella at amirabella@bloomberg.net, Vincent Bielski, Melissa Karsh

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