Stan Druckenmiller is betting on the unexpected.
The billionaire investor, who has one of the best long-term track records in money management, is anticipating three market surprises: an improving economy in China and rising oil prices. He also doesn't expect the Federal Reserve to raise interest rates in 2015, a move most investors are forecasting will happen in September after six years of near-zero rates.
“My fear is that we won't see anything for a year and a half,” Mr. Druckenmiller, speaking of an interest rate increase, said in an interview. “I have no confidence whatsoever that we'll see a rate hike in September or December.”
Mr. Druckenmiller, who now runs a family office after closing his Duquesne Capital Management hedge fund in 2010, has repeatedly criticized the Federal Reserve for keeping interest rates near zero for too long. He told an audience at the Lost Tree Club in North Palm Beach, Fla., on Jan. 18 that monetary policy has been reckless.
“I'm not predicting a crash,” Mr. Druckenmiller, whose hedge fund returned 30% annualized over three decades, said in the interview. “I'm just saying the risk reward of going early is better than going late.”
Extra-low rates are driving companies to take on debt and instead of deploying the cash to build businesses, they're using it to finance mergers, repurchase stock at record levels and pursue leveraged buyouts — practices he called “job reducers.”
“Every month that goes by we have more and more financial engineering,” he said.
BULLISH ON CHINA
Mr. Druckenmiller, who's worth $4.4 billion, according to the Bloomberg Billionaires Index, is bullish on China, even as the country's leaders are targeting a 7% growth rate this year, the lowest since 1990.
Chinese stocks have soared with the Shanghai Composite Index doubling in the last 12 months.
“Whenever I see a stock market explode, six to 12 months later you are in a full blown recovery,” he said.
A recovery in China, the world's second-biggest economy, would influence securities and commodities prices around the globe, said Mr. Druckenmiller. For instance, it would send German government bond prices lower, boost European exporters and lift the price of oil, he said in a separate interview.
Mr. Druckenmiller anticipates oil prices — which plunged about 50% since June — will rise by next year after companies slowed production and exploration.
Duquesne Family Office sold its retail and airline stocks, which benefit from lower oil prices, and has bought equities that benefit as energy prices climb, such as LyondellBasell Industries NV. The world's biggest maker of polypropylene plastic rose as much as 3.1% today to $96.18, the highest price since October. He's also buying crude futures.
In more conventional bets, Mr. Druckenmiller said that U.S. and Japanese stocks will continue to climb. He's also wagering that the U.S. dollar will continue to strengthen against the euro, saying the European currency could eventually trade at 80 cents compared with about $1.06 today.
Greece will “probably” exit the euro zone, Mr. Druckenmiller said. There won't be contagion though, given that banks don't own Greek debt anymore and Mario Draghi, the European Central Bank President, has quantitative easing at his disposal.
“I prefer to see Greece stay in the euro zone, for a lot of economic market reasons and humanitarian reasons, but as a market participant I think it's way overanalyzed.”