Stanley Druckenmiller & Paul Tudor Jones Interview Robin Hood Conference (2016)

our next two guests always give or than they take and that's saying a lot please welcome icons and Stan Druckenmiller and Paul Tudor Jones you good morning and welcome everyone I have the great honor and privilege of interviewing my close friend Stan Druckenmiller today what a spectacular 30 minutes this is going to be it's actually such an easy interview with such a cheery light-hearted good-natured easygoing person who I know will be very kind to me during this whole process it's made even easier today because Stan just had a knee replacement two weeks ago was in a nerve trap last night was gonna cancel because he was in so much pain he couldn't make it but because it's Robin Hood nation because it's Robin Hood and he was one of our former transformative chairs that took us to a new level he's here today he's going to be jumping up and down because he is in some pain you know yesterday I was interviewing what's going on with it okay here we go yesterday I was interviewing Tony Robbins now I'm interviewing you it's like going from crack to quaaludes but while we're both short but but here here we here we go just one last thing yesterday when I introduced Tony Tony I talked about domain experience and expertise if there was in the macro world the living embodiment of a reputation of the efficient market hypothesis he's sitting here next to me right now I know you've had a great year and again in a year when most macro has struggled certainly into the last week or so would you care to share with us how you're doing wasn't a great year I had a very good January in February and then a very frustrating mannered trial treaded water until the election and did some good things election night I'll blame it on the pain I didn't do enough of them they were directionally correct but I violated my own which is sighs sighs sighs when he believed something and I've been preparing in case Trump won a game plan for weeks and more got out of the way that night did a lot and then the market had figured out pretty much everything 24 hours later so I'm doing all right you know I'm having a decent year certainly not a great year you're up double digits in the teens and the low teens yes okay that's that's great to hear so funny I remember even if you missed that night I remember I think it was Friday morning he called me and said all right god damn it you wimp this is the time this is the time I don't know what you've been doing but don't wimp out here you know exactly what's out there don't wimp out here all right step up man up let's do it and it was it actually was a very great call which I appreciate because it's such a contrast what you're saying right now versus what Ray Dalio said here yesterday right Ray Dalio largest hedge fund manager in the world I think I stand at all of us when he said what I'm trying to do is find 15 equal uncorrelated bets no matter here's the guy at the best research group on all of Wall Street saying even if I had perfect research I'd still want to have 15 bets your thoughts on that yeah there's a number of ways to skin a cat in the investment business I think as long as you're disciplined and you stick to it you make money I have the polar opposite investment philosophy I'm put all your eggs in one basket and watch the basket carefully sometimes you have major inflection points where you can anticipate change and I found the best thing that works for me it may not work for others is to really pile in with size in those particular trades I've had I can remember I had a three hundred and fifty percent long equivalent ten years in late 2000 in the bond market I've had two to three hundred percent of my NV nav and one currency and by and large my track record in those is much better than others I tend to only do stuff that radical in very liquid markets to trade 24 hours a day it's interesting because election night all the real opportunity was only in those markets because individual stocks didn't open till 9:30 and by then the markets had pretty much figured out it was it was a very good entry but the night before was the entry and all that stuff look you know let's talk about that night so when Trump won what was your P&L curious your P&L at 10:30 p.m. from the close that day were you up or down on Trump's victory I was literally in so much pain I don't know it was five days after knee surgery and my three daughters well two of my daughters and my wife were there saying they wanted to move to Canada I got three daughters I know that feeling I'm not a Trumpster and I didn't vote for him I didn't vote for either of them but you know it seemed pretty simple to me that much lower regulation and much lower taxes I didn't quite understand why that was bears for risk but I imagine I had a pretty violent swing in my pl I was set up for a Hillary victory but not the way others were I was short the market and I was going to short more if it rallied on Hillary because I just thought we're in this horrible trap with no upside out of this monetary experiment we've been in for eight years and it was like oh my god this this may or may not work but I can see why I can work so with Trump particularly the Ryan and pence I saw tremendous upside whereas going into that I saw no upside it's a risk of course there's risk but with Hillary I saw no upside and some risk with Trump I saw tremendous upside and some risk yeah and the reason I was asking about that is because I think most everyone the macro world kind of thought Hillary was going to win everyone was probably looking at negative P&L that was moving against them initially and of course that was as you say the time to strike and again your big differentiator is size if I think about the training process and you kind of break it down into analysis analysis Trump wins Clinton wins and then instrument selection how am I going to express my view and then sizing how big am I going to be and then execution how do we actually execute and then finally risk management of those five in your history is there any one that's been more important to you or they all equally weighted what what is it that sets you apart from everyone else who goes through those same five steps well I've always thought it's sizing but with a caveat if you're going to bet big you have to be ruthlessly objective about your position I've put on positions I was a hundred percent sure I'd have for two or three years and ten days later in my opinion the facts changed and I'm out of them but if you're going to go the route of making concentrated bets you also have to go the route of being completely open-minded when the facts change of being wrong you can't sit down in there and double down if things don't start to work out you have to exit that position I've never used a stop loss in 40 years but I have exit a lot of it's not because the price was down but because the reason I bought them were starting to change I mean a classic example is gold as many of you know cuz for some reason it got all over the press with my ETF I bought a lot of gold two or three years ago I can't remember what it was and I started to worry with with Theresa May and the war between Draghi and the Germans and even Kuroda that this whole monetary experiment people were starting to get that the risk/reward had changed and I felt trapped in a decent gold position I would say what the hell am I gonna do well election night somebody decided I don't know who it was up thirty five dollars and I said well I'll start selling and see if it handles it I could not believe it I told my whole position I'm 35 i watch which I was inclined to do anyway but it was just a gift because all the reasons I had on gold changed in three hours the whole belief that monetary was the only answer and we were never going to change monetary regimes all evaporated in a couple hours now what would surprise me was only there five hours you had five hours to operate in the old days we would have two or three days but people are a lot quicker now than they used to be just going back to the sizing issue if I had to say the one thing that I think differentiates you from everyone else the one thing that's become kind of clear to me in the macro world is you can even take and macro and you can split you can take the beta and you can take the Alpha and you can kind of break it down into the two components and when I say beta most macro traders are some type of intermediate trend trend followers and so when you've got a high volatile period it's a great time to have traders who can warehouse risk to have women or men who can come in and can go 150 or 200 fifty percent a particular instrument I would call that beta all you wanted to do in the 80s and the 90s when you had great trends was had beta then you get into period like the last two years where everything kind of or let's say so after the first quarter of 15 where everything moves sideways then the Alpha becomes so critical and what you've been able to do is again brilliantly because I don't I know you don't make the same size Betts's is distinguished between environmentally when it's time to go big and not and just when it comes to your sizing a again anything how do you have that aha moment when you go okay it's time for 250% and then B when you're running those big positions when you're running those outside positions how do you deal with that emotionally and physically well let's be clear I'm not making thirty percent a year anymore since I retired and I'm not running the size I used to and I do feel like I left so much on the table election night but I don't know they're just there been a number of instances over my career where it was very clear to me that the world had changed the world changed on 9/11 the world changed when the wall came down in Germany the world changed tonight Donald Trump was elected and these set in place usually two to four year trends of concentric circles you can play and I've always felt comfortable again I'm not the man I used to be of jumping in big with a thesis and if it's working staying with it all right the man you used to be when you and George were teamed up I remember you lost you had nine minus one billion dollar day for but thanks for reminding me you know being here being there who cares what was that like I can't even imagine what that was like it wasn't it wasn't fun it was gut-wrenching and I'm not gonna sit here and tell you how I had great conviction let's double down I was doing you know what in my pants but again since the facts had changed my thesis hadn't changed I stuck with it there have been other periods where I put on a bet like that and the thesis changed I just took my medicine interestingly none of those $4,000,000,000 days was one of those but you know I famously got trapped up bought the Nasdaq beautifully in 99 sold it in early 2000 bought the exact top I knew I was trapped there you know I blew that out that probably cost me 15% by the time I clean that mess up I'd made on the floor but now it's too terrible emotional experience it's also fun winning I'm a bit of a junkie for adrenaline so do you think I know George is still trading in his late age you think you'll trade to your late 80s I hope so my mother-in-law said I'm an alien Sivan and she's right I don't know what I'd else I would do I don't have another skill set TV talk show host how'd you do that you're excellent let's talk about Trump so you just said the world has changed why don't we take hit asset class by asset class let's start many of you may have noticed anybody know what the theme song stand chose for us to walk out was when doves cry when doves cry so that was his big attempt at given one of these to our current Federal Reserve policy you want to talk to us about interest rates and what you think Trump the implications for that are well it's a it's a fluid situation I'm not a big fan of Donald Trump let me just put it out there put that out there but I am a huge fan of Paul Ryan and Paul Ryan and Mike Pence grew up in the house together and they're like this and because of his inexperience in a lot of matters I think Trump is going to have to delegate in certain areas and I think there's a very high probability that one of those areas will be in tax reform and regulation policy I think he'll be very involved in infrastructure because as you said I build things this is what I do okay but conveniently Ryan and the Republicans were worried about Trump a year ago so they've come up with a program I don't know why it has not gotten more publicity called a better way it's similar to the contract for America back in the 90s and it is an in-place program to hit the ground running that calls for major cuts in individual taxes more importantly in major cuts in corporate taxes with corporate tax reform a v80 tax on an imported good that's not taxed on export of goods non deductibility an interest expense we'll see how mr. bilder goes for that one all this is kind of a dream it's all anti oh also one year complete write-off of any business investment so it's all pushing us toward business investment capital spending and away from financial engineering how much Trump will get let through I'm pretty confident he's prepared to delegate a lot of this my problem will be with the Senate you can just see the special interest carving this stuff up when you get there but I mean if half of this stuff gets done it's huge the only economist I know that is good at predicting the economy most of them write obscure papers and get Nobel Prizes the IMF is the IMF is oh for 220 and predicting the 220 economic inflection points is my former classmate Larry Lindsey he predicted the ninety recession he'd predict the upturn in the 90s he predicted the 2000 recession he predicted financial crisis putting all this together he's using six percent nominal GDP in 2018 because we borrowed so much from the future with the monetary policy I don't think we'll get to 6 percent nominal growth but when things aren't being rigged and I think we're moving away from that 10 years tend to trade on top of nominal GDP so the math is not complicated if you don't think we get short-circuited cuz we've borrowed so much from the future through interest rates it would call for a 6% ten-year in a year and a half it's not too complicated I've seen these kind of moves before they're big trends as you know we got lucky with the Euro at 135-140 I think everybody hated the Euro from 135-140 but everybody over traded their position that's what you tend to do when something's going like this and I think the 10-year is something and again you got to keep an open mind and see how things unfold it's a very fluid situation but this is not something you want to over trade this could be a massive massive change in trend sort of the mirror of when I started Duquesne in 1981 so favorite interest rate trades gonna be short in the u.s. going to be probably short tens or fives or I don't really care if she continues to fight it tends and 30s but even she'll catch on in six months if this stuff unfolds the way I think it is it really doesn't matter Germany it's unbelievable to me that Merrill Draghi has been whining about Janet Yellen for a year and he's sitting there on minus 40 basis points and debating whether to put 80 billion a month or 60 billion on top of that ridiculous European economy is doing fine they don't have deflation so I'm short a lot of that stuff I'm short gilts probably looking for or 5% nominal GDP growth there 130 or 140 or wherever the art it doesn't make any sense to me these yields so what I think so interesting about about in the interest rate trade is you've actually got three things going on you've got obviously a change in fiscal policy you have I guess the end of the three and a half decade bull market and interest rates which in just by itself just on some normal mean reversion would give you a huge move but then you've got the kicker in he's going to appoint a new Fed chair person and just have you heard anything on that just curious is the kind of person you think he'll appoint and what impact that will have on rights well I heard him say he's a low interest rate guy but all the people I've heard and the philosophy when in his crowd is very much that the monetary policy has killed the forgotten man it's made people like me and you richer it's killed the guy in Kansas City who saved his whole life and he's getting zero on it it's moved money away from the real economy to financial engineering so I just the names that are floating around always suggest a more normal neutral kind of monetary person running the vein I mean honestly the only people that think like this are at Harvard Princeton and to the Federal Reserve if you go anywhere in the United States they all ask me what's the matter with you people and I will what do you mean you people with these crazy interest rates you Wall Street people I said well don't count me in but intuitively the American public understands that there's just something wrong about borrowing money and having a hurdle rate of zero so that the Fed chair person the difference between a new normal normal to use your word fed chairperson Jantje ellingsworth how many basis points across the curve well if usually we're gonna use normal Taylor yeah Taylor rule measures we should be at three percent now come obviously if you get there violently you won't get there I mean that's the tragedy of what she's done she's had at least two years to sneak four or five in including like six or seven months of 300,000 payrolls she's had so many opportunities and she's blown it the riskier is monetary policy doesn't do anything except drag demand forward from the future it sits somewhere between here and normal you get certain short circuited because you start to pay back what they've been stealing from future demand the last eight years all right so let's say your interest rate forecast is right I'm going to challenge you on because my guess is since the stock market's a long-duration asset - and because our stock market of GDP is 130 percent and the wealth effect is well documented on the stock market probably won't tolerate that how how much can rates rise before you think it would trip a 10% correction in the S&P 500 I don't know the answer to that question but I would think 3% would certainly be a problem on 10 years mm-hmm so it but the start mark to me is more about mix than direction right now the companies that could make a lot do very very well in a zero growth environment were that we're worth a lot more 13 days ago than they are now the companies that are geared toward world growth may have the earnings to overcome that so it's more of a mix change but look I mean it's not rocket science rates will go up enough this this market has been fed risk parity blah blah blah that that will all get your short circuited long before you get to 6% on a ten-year ok so right now stock market you're kind of you're running a beta neutral portfolio a balanced portfolio your risk is in short rates short stock stock markets not bags talking to you right now no not at all and I like Japan because it's a value play and they had the most stupid policy in history I mean leave it to the Japanese three or four months ago where if rates started and things started get better they have two E's and the things start to go deflationary they had to tighten I mean you literally can't make it up so this decline in again and what's going on could be could be self-feeding which leads me to the other way to play all this which is obviously the dollar you need it's not just a rate rate it's a dollar play with with Draghi fighting kicking and screaming he will lose he will get mugged by the data and the Germans eventually but as long as he's fighting and Japan is sticking to his policy and again being open-minded that Ryan pence gets a big gets a big portion of this without the Senate Newquay and all it looks like a big trend trade so in FX your favorite short is the end of the year oh I like them both like equally weighted you like them both euro could go to where 82 Wow intriguing oh you're a chick you're a chart guy this is kind of funny because when it broke 120 measures I said it counts to 82 yeah and they look I said yeah but usually go sideways for a year-and-a-half and of course I went to 105 and I forgot that it still counted 82 and he goes cited I said how the hell could it ever get to 82 through that that eggs in one basket thesis away about a year ago and now I'm thinking well I could have visited getting to 82 yeah I think 82 works maybe not on interest rate differentials but it probably works if we actually had a threat of a eurozone breakup then for sure it's at 82 let's talk just I want to get to I want to get to commodities but just well actually let's get to come eyes then well then we'll come back anything come on Spacek captures your fancy right now no I'm more watching commodities as an economic indicator than playing them I'm very intrigued that all the base metals bottomed last May and they looked very healthy throughout this and of course they got what I would call a trump boost and if you look at copper versus gold which is everything capsule eats everything we're talking about which is Monetary riot radicalism and regain versus a real economy they're they're all so far endorsing everything we've talked about okay a couple of high-level macro questions eurozone obviously the brexit vote the Trump vote this moved towards nationalism on this insularity that we're starting to see any thoughts on eurozone what's it going to look like five years and ten years from now obviously one of the short euro part of the short euro trade is that place won't survive it's 27 shots on goal in terms of those countries somebody's gonna ask for a referendum and that's gonna just obviously create some type of global dislocation I believe the pound blew up in 1992 because once Germany reunited it was a stupid idea to have the currencies of Britain and Germany locked because their economic future was so dependent on different measures it just didn't make any sense anymore the eurozone doesn't make any sense I mean Italy has not grown in 9 years not a zero Spain and Germany are doing fine it's a stupid idea okay it's one of those things that was a great idea and it didn't work so it's time to adjust so I assume at some point within 5 or 10 years for sure the eurozone will blow up because it it doesn't work anymore these these countries you're not United now you're gonna say well they haven't had a war all right come on i J pan was a warlord country for its entire life they haven't had a war since World War 2 it's not because of the eurozone you know they're not in like some Asian Pacific zone it's because you had a change in culture in Japan which I would argue very strongly you've had a change in culture in Germany and to say we got to do this because we haven't had a war when people know now you got in a major where you're talking nuclear there's all sorts of reasons we haven't had a war in Europe but to say it's because of this stupid eurozone idea just makes me crazy I'm so glad you answered that question before I ask it another big macro question Japan their debt to GDP clearly it stands out as an outlier when when you look at a scatter plot against any other countries we're now surpassed a level where Greece went tips up any forecasts any thoughts of what the ultimate resolution of their sovereign debt problem is which of course right now doesn't even exist in the mark at least as far as a martyr's cares well the ultimate solution is a monetized and the tiny you have to be open-minded and I'm as open-minded as I've been in the whole time that it finally may have started which would be good for the equity market and could send the currency anywhere anywhere but you have to be open-minded to the big move in the yen you had the repatriation move pre Trump and pre Kuroda's latest shenanigans that this thing goes to some crazy level and I mean crazy well am i predicting it no but I'm very open-minded to it which I have not been for quite a while when's the last time you trade jgb oh they whip my butt so many times I just tired tired I mean I'm probably over 17 in my last jgb trades that will work and the fact that I don't have a penny of them and I'm short every bond in the world but them probably a good time because I keep you know it's funny that the whole Japan story's like a rube is cute you know it's solvable but just getting there and I keep thinking maybe Trump's presidency and the rise in u.s. rates and the contemporaneous depreciation of the yen will actually create enough inflation where the BOJ has to ultimately move and my guess is when they take that first step it's one that's going to be not a law not off this platform but off a cliff any thoughts on that yeah I'm very open-minded in that scenario I got it any other idiosyncratic macro ideas that have got your fancy at the moment not really I mean I think this is one of those keep it simple times it's to me it's a very compelling thesis let's say open-minded how it unfolds because yeah you know this is not Ronald Reagan we're dealing with here different we'd said you know he got cheated out of two million votes after he won the election interesting so I don't quite know what we're dealing with here I'm I'm assuming we're dealing with a guy who wants to do a lot of foreign policy fly around in the jet work on the infrastructure and stuff and the the secret I think is that these guys have been developing a better way for a year and a half or two so that is ready to hit the ground running and could be done as early as July and there is no way the market is priced that if that happens the big hiccups could be number one trump and number two the senate yeah I keep thinking this could be the greatest period for finding some stuff and just taking the pain again like 94 in the bond market it just kept going and going the Fed the Fed could not keep up because the economy kept outperforming this reminds me so much of that we've got a whole generation that's never seen a bear market and bonds Trump is kind of a wild card because he's so unpredictable I I would feel a lot better if I didn't think he could do a 180 the next day but still I think we've got to stick with the Trump trade certainly all the way in the first quarter of next here okay can I just say in that vein I'm what you just said the last two times I've been up with you I've said some unkind things about future hedge fund returns and particularly macro and I am really optimistic that this low volatility rigged period has ended I mean part of the problem with the last eight months before Trump was it's hard for a rational money manager to buy something they know is way overvalued that's being pushed by the authorities come more overvalued these people do have brains and it interferes with their trading and I do think you will be astonished if this stuff plays out the way I think at some of the returns generated by managers in both the long short area and in the macro area the next three or four years because the rigging volatility run by all these other things going on to me is ending and this could be a very fruitful period for for great money managers who they are I have no idea but I'm sure they're out there thank you thank you so last question you've had one incredible philanthropic career you've done so much god when you were chair Robin Hood you helped us so much Harlem Children's Zone you and Geoff single handily not single-handedly but obviously y'all spearheaded that phenomenal effort what is it right now that's got you really excited philanthropic Lee well there's a lot of interests I have it I'm excited about but I am really excited about this new initiative that we're a part of called blue Meridian which has a website and it's really to some extent the culmination of everything I've learned in philanthropic investing Robinhood when I was chair and to a great extent today was to identify new up-and-comers embryonic do-gooders out there that was going to change the city and change the world and thanks to you and other board members that's how I met Jeff Canada but what I've noticed with Jeff Canada because he was able to scale something that nobody said to be scaled is after these organizations are identified and they tend to be proven and look scalable a lot of the early funders because they want to be disruptors and they want to be the guy who invented it drop out just when it's a perfect analogy to trend-following just when the thing gets really good okay people forget about him and and what blue Meridian is and I had the privilege of meeting Nancy rube of Edmund McConnell Clarke who was probably the number one toughest evaluator of Robin Hood and I'll just credible of Harlem children on donor to us and she's come up with this idea to take to identify and find say six to eight organization not Harlem Children's Zone but like Harlem children zone that we think can be scaled nationally and moved move the needle it's all at risk youth stuff and we've got a number of partners involved we've raised about 800 million and I think there's going to be a second round it's bigger bigger than that and the idea is to take these things that were identified in the embryonic scale they worked and then a great leader and the vision to make them work long-term and it's about as excited as something I've been in philanthropy since I got in and got in the business that's fantastic just want to leave one last thought for everyone here along those lines it's really so important that we all do participate in whether it's do Robin Hood problem children zone blue Meridian whatever I'm struck by the fact that New York City with three times the population in Chicago has a murder rate that is below that of Chicago and of course one of the reasons why is because Robin Hood Nation folks like you in this room help support the 60,000 501c3 not-for-profits in New York City it's our social fabric that keeps this city so fantastic who else keeps it fantastic is my friend here and thank you so much I know you were in pain today I'm so grateful for you coming much appreciated thank you it was it was a pleasure to be here and I want to reiterate everything Paul said about Robin Hood and hopefully you'll all participate I've watched them since 1987 and they've just done great work and it's it's bigger and better than ever and I really appreciate everybody that's helped out with that effort thank you thank you [Applause]

Channel: Peppi Carpinelli

Views: 26,361

Rating: 4.9587631 out of 5

Keywords: stanley druckenmiller paul tudor jones investing stock markets business

Id: S_x0n5BS1Pw

Length: 38min 57sec (2337 seconds)

Published: Sat Nov 02 2019