In Good Company with Nicolai Tangen - HIGHLIGHTS: Stan Druckenmiller

Episode Date: November 8, 2024

We've curated a special 10-minute version of the podcast for those in a hurry.  Here you can listen to the full episode: https://podcasts.apple.com/no/podcast/stan-druckenmiller-inside-the-mind-of-a-legendary-investor/id1614211565?i=1000675883446 This week, Nicolai Tangen visits Stan Druckenmiller in New York — one of the most renowned investors of our time, known for his insights into macroeconomics and markets. In this conversation, Druckenmiller shares his approach to major trades, like his groundbreaking bet against the British pound, and offers a unique perspective on today’s market, discussing inflation risks, AI’s potential in investing, and what keeps him ahead of the curve. The investor shares his reflections on the Fed’s role, the future of tech, and lessons learned from mentor George Soros. In Good Company is hosted by Nicolai Tangen, CEO of Norges Bank Investment Management. New episode out every Wednesday. The production team for this episode includes Isabelle Karlsson and PLAN-B’s Niklas Figenschau Johansen, Sebastian Langvik-Hansen and Pål Huuse, with research by Une Solheim. Watch the episode on YouTube: Norges Bank Investment Management - YouTubeWant to learn more about the fund? The fund | Norges Bank Investment Management (nbim.no)Follow Nicolai Tangen on LinkedIn: Nicolai Tangen | LinkedInFollow NBIM on LinkedIn: Norges Bank Investment Management: Administrator for bedriftsside | LinkedInFollow NBIM on Instagram: Explore Norges Bank Investment Management on Instagram Hosted on Acast. See acast.com/privacy for more information.

Hi, everybody. Tune into this short version of the podcast, which we do every Friday. For the long version, tune in on Wednesdays. Hi, everybody. I'm Nicolai Tangen, the CEO of the Norwegian Sovereign Wealth Fund. And today I'm here with Stan Druckenwiller, a proper legend in the investment world. Stan, what a pleasure to be here. Happy to see you, Nicolai. Now, what are the most important data you're looking at these days? Currently?

Yeah. Interestingly enough, I'm known as a macro investor, but I do our macro from the bottom up. So we're listening primarily to companies, and we're not seeing any material signs of weakness other than maybe in the housing market, but that's from a very elevated price level. So we're not seeing bottom-up information indicating to us that there's an economic problem anytime in the next three to six months. I would also say, I'm revealing now that I'm more of a market animal than an economist,

that we look at financial conditions. They've been very, very loose. I mean, they're as loose or looser than they were when the Fed actually started tightening. They've tightened considerably in the last four or five weeks, ironically ever since the Fed cut, because the dollar has rallied. And obviously, interest rates have gone up. But they're still quite above normal. So that's pretty much the data we're looking at. How big a problem is the budget deficit?

As a practitioner, it's something I can't be obsessed with on a three to six month basis. As an American, it's something I'm really obsessed with because debt to GDP can't go up forever. And to me, we have a reckoning, but I don't know how to time when that's gonna take place. I will say that because the reserve currency, we've been permitted to engage in behavior that say the Brits couldn't have behaved in.

There's a new term I have, getting Liz Trust. We haven't been Liz Trust because we are the reserve currency, even though if you look at everything we're doing, it's much more radical than the Brits were doing. What's that old saying, how do you go bankrupt slowly and then suddenly? Running deficits with full employment, basically at 7% of GDP is a recipe that can't last forever. One of the reasons we haven't paid for it is in COVID, the entire private sector, 80% of individuals refinance their mortgages. So the average mortgage rate is still under 4%, even though at the margin, it got to 8%.

Corporations turned out their debt. That stuff rolls over in 25 and 26. If we're going to have a problem, it's probably more like late 25, early 26, but you just don't know. How do you think the tech sector will develop? What kind of signs are you seeing there? The AI boom is going unabated, Nikolai. What is it that you look at? Honestly, I've got young, really good analysts here. Yeah, a lot of people have a lot of young analysts.

Who are on top of things and they started. We noticed about three or four years ago that the kids that go to Stanford and MIT, the engineers were shifting from crypto to AI. That was the first sign. Then my young partners started talking more and more about AI. I asked them how to play it. They mentioned a company called NVIDIA, which I thought was a gaming company I hadn't done work on in a long time.

I bought a pretty good chunk of it, and then like a month later, ChetGPT happened. It was just total luck. I had no idea ChetGPT, but the AI drum around here was big enough and the stock was down I think from 400 to 150 or something. So that's how I got started in it. And then once you get started, once we invest in something like that, then we really start to dig deeper and then there was a whole chain of things. When we last met, you mentioned the concept of buy first, analyze later. Tell me about

that. Yeah, Soros used to call it invest and then investigate. I think I just gave a classic example. I didn't know that much about Nvidia. I just knew that AI, and I had some people here tell me how to play it. So we bought Nvidia, and then we were in the process of doing a lot more work, and then chat GPT happened. But I've always had the view that markets are smart, they're fast, and they're getting much more so

with all the communication and the technology we have today. And that if I hear a concept and I like it, if I wait and spend two or three months analyzing it, I may miss a big part of the move and then psychologically be paralyzed. It's hard to buy a stock you're looking at at 100, it's 160, even if it's going to 400, somehow your head is screwed up and you're waiting

for the pullback. So we will buy something, a meaningful position, but not earthshaking, and then really do the work. And if I think we made a mistake, I'll sell it. And if I don't think we made a mistake, we'll add to it if we have to. Yeah. No, I happen to have worked exactly the same way in my life. It really focuses in your work and your efforts and your thinking. But have you always believed in your own pattern recognition? Yes.

When I started in the business, I got promoted too early. So before I had really learned the nuts and bolts of the analysis to the extent that I should have, I was promoted to a leadership position and I had to rely a lot on charts and I had to rely a lot on charts, and I had to rely a lot on intuition. What I learned from Soros is when you have conviction, you should bet really big. I know your listeners have probably heard it before, but probably the best illustration is the pound.

Yeah. So what happened? So let's go back. So you are in the office. What's happening in the UK? The day I believe was September 15th, not that I would remember. I read the Financial Times and the head of the Bundesbank. Now I'm sure I'm age, but I'm pretty sure it was Tietmeier has written

an editorial in the Financial Times basically in more proper language, but he's basically saying that the Deustchmark and the Pound should no longer be linked. like so I decide to take Duquesne and the quantum fund to a hundred percent long the Deutschmark Short the pound because it's still a half percent unbelievably So now you're gonna hear vintage Soros So he happens to be in New York at the time, which he wasn't always. I go into his office and I explain to him why I'm going to 100 percent.

And he had a rather large personal account. That's how we kept each other out of each other's hair. He traded that and, you know, it was 90, 95 percent overlap. Told him why I was doing this and he had this Unpleasant puzzled look on his face What I'm telling him my thesis that this one economy is booming and they need higher rates this other economy is falling apart They need lower rates that

These two currencies shouldn't be linked and I'm thinking that these two currencies shouldn't be linked. And I'm thinking, what does he not understand about this? Because this guy pretty much understood everything. And he says, look, this is a one way bet. They come along very, very rarely. It's ridiculous doing 100%. We should put 200% of the fund in this trade. So there you have it.

Now you took a sabbatical in 2000. Yeah. What was the reason behind that? It's a painful but really fun story. The fund is down like 17% and Duquesne is down 17 percent. I'm just exhausted. I've been running this high-profile fund for 12 years. I sell everything out, everything at Duquesne,

send my investors a letter and say, I'm going on a sabbatical. I don't know whether I'm coming back or not. You can take all your money out, but if you take your money out, if I decide to come back, I can't guarantee I'll let you back in. I think I had like 200 clients,

one of them pulled their money. I remember who it was, but they'll remain anonymous.