mr. Drckenmiller thank you for your time pleasure to be here tomorrow we have the last Fed decision for 2017 I guess they're expected to raise interest rates again what's your expectation of what comes out of this event well I think they're gonna raise rates a quarter but I don't think that's news to anybody or anybody in your audience so that's my expectation it's the second to last meeting under Janet Yellen and they're gonna now be led by Jerome Powell into next year there's the market thinks they're gonna raise three four maybe five times does that mean normalization is underway I hope so but I don't know you're talking about humans who I'm not that familiar with and events could change over time but uh it's interesting you asked about normalization because the the conversation I hear in the media and the financial press seems to center around tightening and I think the conversation should be what you dis alluded to normalization and the difference being normalization means sort of reestablishing a hurdle rate for investment that's been with us actually for probably 5,000 years it's just in this eight-year period we've decided to throw it out throw that out the window and it's a little bizarre when you listen to the reasoning Jim Grant had a piece out the Bank of England did a study I don't know whether you know this but the last 700 years I didn't know it inflation is over - 1. 08 percent inflation has averaged 1.
0 so effectively 1 percent the last 700 years so what we're going through right now which has been somehow led by Ben Bernanke put in the public's head as some scary horrible thing that were there the zero bound and we couldn't dive in the deflation if you take out the 70s and 80s which is a period a lot of us grew up in we're actually in more normal times now not but not with five or six percent inflation rates so do you think they should even be shooting for 2% inflation then I think the 2% inflation target needs to go if I was running the Fed thank God for the to the world I'm not running the Fed it would probably not be in my top ten criteria the 2% inflation target has sort of become a religion initiated by the professor's and it's this target there's an interesting story on the front page of The Wall Street Journal today how Amazon is making the feds job more complicated this belief that 2% is appropriate for all seasons at all times to me is pretty absurd it take the last great innovation period which is the late 1800s we had deflation for 10 or 15 years accompanied by very rapid real growth in the 50s I think inflation was 1% maybe a little lower for good part of that decade Fed Funds were four we had rapid growth there was there was no crisis so what you're saying now is that if we're if inflation is running let's call it 1% that that should be considered normal and fine and they could still have interest rates up at even 4% what I'm really saying that yes I if you took the Taylor rule and I'm not a fan of virginity a normal interest rate given our economic circumstances would be 4% interestingly what we're at one in Europe it would be two there at minus forty in Sweden it would be 375 there at minus fifty that doesn't even count the bond buying we're talking yep but this is all in the name of this two percent inflation target and I'm just saying if you look at if you look at the two percent inflation target there's a rigidity in there that doesn't make any sense for me in terms of all seasons so let's just take for example the Amazons story this morning here all right is it pernicious inflation if it's because of innovation and productivity or let me give you another example I did a lot of entitlement talks as you know and I kept pointing out that health care in the United States is 17 percent of government costs and the highest any other country is 11 if Amazon and and other factors were to push that inflation rate for health care down so we're no longer 17% and we moved toward the other countries is that a bad thing my should we then start doing QE because we're not hitting this mythical target so maybe in the in the 70s when inflation was 9 or 10 a 5 percent inflation target might be appropriate otherwise you'd be raising rates to 50 or 60 but an innovative period like now I think minus 1 might not be a horror show I don't know 0h fine and other periods for might be fine it's just war we're in an innovative period and fixating on this 2% is causing a lot of other consequences that's what I was gonna ask so if they're keeping rates in this country you know barely above zero and other countries below zero what do you think the consequences of all that is well the consequences are huge because we distorted market signals and we're causing all sorts of what I would call this allocation of resources like Bitcoin or is that unrelated no it's not unrelated at all that coin art wine equities credit you name it everything is one way up and they're huge distortions taking place and it's all in the name of this 2% inflation target and when you get a misallocation of resources it really hinders growth over the longer term they give you an example last week there was a company called steinhoff that's the company that's the parent of mattress firm in the US now yeah this is a South African firm I was lucky enough to be short to start because someone was kind enough to explain to me that these guys might be crooks there was fraud at best when he look what was going on it's a huge roll-up and they buy this mattress company in the US for a hundred percent over where I was trading they're borrowing money big rollout big credit and guess why they're able to issue all this debt because the ECB is buying it of a company that half the street knew was a fraud and it's going to bankrupt now Mario Drghi would tell you no problem we're making money over all in our portfolio the fact that we lost 150 160 million on these bonds it comes out in the wash the point isn't whether the ECB is making money the point is they are keeping crooks and zombie companies alive this is exactly what you panned it for 20 years it hinders long term growth companies like this should not be walking around borrowing money and that's kind of that's kind of where we are today you see what's going on in Bitcoin do you own any crypto currencies I don't own any obviously as a trader I should have but I only trade when I know what I what I do know is it takes the same amount of energy to do one Bitcoin transaction that it takes to power nine homes in the US by 2019 it'll take up all it'll take up half the energy in the entire United States to run the Bitcoin network sounds like the utility companies are a bi yeah well I find it interesting that that most of the people in Bitcoin are climate people they're West Coast people I don't quite get the connection we've got this rogue currency that we're all going to support that is destroying the climate in some extent but whatever so you're not going to take a position on whether bitcoin is going to go up to a hundred thousand or a million or whatever the I mean if we're talking about bubbles it must look to you like some of the greatest we've ever experienced I don't know whether it's the greatest we've ever experienced look bitcoin is like anything else it's worth what people are willing to pay for it and right now people are willing to pay I haven't looked in the last five minutes so it could have very tender let's say they're willing to pay 17,000 that's what it's worth the tulips were worth when people are paying that for them gold is what it's worth what I do know about bitcoin is the concept that it could ever be a medium of exchange has been eliminated because you can't do transactions and particularly retail transactions with something with this kind of volatility but if people think bitcoin is worth seventeen thousand that's what it's worth today last thing on this before we move on there are people who want to hold Bitcoin for it because there's critical of the Fed and other central banks as you are so if they agree with your philosophy that the central bank's are screwing this up then what would be a better way to express that than holding something like Bitcoin that's an excellent question I think it's at some point figure out when this is going to end and then either get out or go short because by the way when this ends and it will I'm talking about this monetary radicalism period we're in Bitcoin will probably go down so the stuff so are you actively positioned for that now what because I know you've been talking about these themes how's it been trading this given that the market has been going against you time and again what is the question exactly on the macro front yes let me let me ask it this way how has the year been for you because you do the the the funny thing is you actually have what looks like the dream portfolio you've got the fang stocks you've got the chinese platforms you've got the names that are up 70% in some cases they and you know while at the same time of court having some concerns about the macro climate so how's the year been I would have to say it's probably the worst year I've had relative to the set of opportunities out there I can never recall I mean night for me 1997 was close that was an Asian financial crisis that was pretty good I understand why you have this impression because that they have to election I was on your network and pretty much was very constructive you've obviously been looking at the 13f filings it looks like I'm making fortune in stocks I have done well very well in stocks I've really really missed traded macro it's gonna be if it was up to macro I'd have my first down here but stocks have bailed me out so Wow barring a miracle that's not gonna happen but but you're not up 30 percent I'm not anywhere near 30 and I'm not up double digits you know I'm having again relatively opportunity said a terrible year it's gonna be my first barring a miracle it's going to be my first down year and currencies ever but what happened in currencies I don't know whether you're a golfer but I remember the great city bus by esteros after he for putted the sixteenth at Augusta and the media tent they asked him what happened with the four putt and he said I miss I miss I miss I make that's how I traded currencies is sure Kelly I had a lot of misses and a few major ways it I've pointed out repeatedly the fact that the US dollar so weak would that be one example or are we talking about other things now it's just me over trading and being cold at the wrong time and since it's been my bread and butter for years I'd say over allocating exposure there relative to equities somebody on your network said a week ago all you had to do this year was roll out of bed and you're gonna be up 20 or 30% apparently I got out of the wrong side how are you setting up for 2018 this is really an interesting puzzle because I don't buy the narrative on the TV that this is all about earnings yes earnings have been better in the last six to nine months but they weren't better the last five or six years have been maybe multiple and if this was all about earnings your favorite thing Bitcoin wine art wouldn't all be up form the ESPY this is about in my opinion central bank radicalism they're buying an annual rate a trillion dollars a year and bonds in a pretty robust economy and on top of that as I'm sure you know a third of the world has negative interest rates so this Tina or there is no alternative or whatever's happening this money is obviously going into financial assets what's what's interesting about the puzzle they put in front of us is if you believe the central bank schedules and if you think the ECB is going to stop this nonsense next September that trillion dollar annual rate is going to go to minus six hundred billion over that period of time it's a big swing yeah the other way to look at it is every on average every trading day the central banks are buying three billion dollars worth of bonds and whoever sold those bonds to them is getting zero and a lot of that money is leaking into risk assets so we have the potential a year from now that trillion I'm sorry that 3 billion a day in buying is going to be 2 billion a day in selling in addition if you look at the Fed dots god knows where they'll be after but but let's say you think Fed Funds next year going to end at two or two and a quarter it's hard to believe that a delta of - a trillion six rate of change in bond buying versus letting them run off and that kind of tightening that financial asset prices will be sustained where they are now but you know our business is about timing and I am very uncertain about when this is going to matter and if you look at traditional market indicators like breath and all that kind of stuff they're all still very positive and it's not shocking because today probably the ECB about three billion so but in January that goes to a billion and a half or less and then in June the net-net with with our shrinkage goes to zero and then it goes negative probably going to matter so are you gonna hang on to Facebook Amazon Netflix alphabet are you do the fing names you just ride this out I really really like those names long term and those 13 F filings don't show what I have against them and it'll be what do you mean what you have against them well they're called shorts are they just hedges or in other words are you just hedging your shorts another social media company user I don't really like pitching to me if something needs to be hedge you shouldn't have a position in it but there's so much disruption going on in our economy and in the global economy there's plenty of opportunities to find on the other side I think like IBM which you've traditionally shorted well I don't know whether IBM stock is a short right now but that's that's the kind of company which to me has been under investing buying back stock paying dividends whether competitors are basically eating their lunch in cloud and in a and everything else that is that is competitiveness is positioned or like retailers old-line retailers I'm sure you know this we have 24 square foot per person the United States of retail space China has 3 Germany has 2 I would call that being over stored so are you shorting sort of a basket of retail names or I have been short retail throughout the year and depending on the time period sometimes larger sometimes smaller and I would expect that that thing to continue so you're hanging on to Amazon even after the run that it's been on I love him this company which everyone keeps quoting the multiple is selling for less than three times sales well who knows I haven't checked it in the last few months but the SP is selling for over 2 times sales they're dramatically under earning I don't think looking at the price earnings ratio is is the right move here you have to look at the long term earnings power the company and they are intentionally under earning their investing I I think Bezos is incredible do you like the Chinese consumer companies for the same reason Baidu $0. 10 Alibaba those seem to be emulating Amazon strategy well I don't think I'd say they're emulating and I really like 10 cent and I really like their position they're you know they're in payments they've got their own version of Netflix they got their own version of cloud WeChat is probably the best platform on the entire planet for all of it and then they have a gaming business you know it's funny if you look at Amazon AWS is is basically funding all the investments that are making in the other areas with $0. 10 their games are fund ending everything else they're going so my own 10 cent right yes like Amazon 10 intentionally under earning and just the long-term growth looks incredible I think it's 40 times earnings and they're gonna grow at least 40 percent so it's 1 times growth rate I still like it this is a little bit different but what about Tesla and Elon Musk do you see analogies between what he's doing and Amazon and Bezos or is that actually for you a problematic valuation story have you ever owned it no I'll tell you a funny story about Tesla I had him I had a guy who managed some money for me come in when the stock was 82 dollars and I a I think I was 62 I so I had given myself a Tesla for my 60th birthday and he had this incredibly effective analysis like 20 pages of financials about why Tesla was a short and at the end of this presentation really well thought I said have you ever driven the car and he said no and I sent him his Redemption notice the next week so you didn't short it I did not short it and I don't know why it never occurred to me at the end of that conversation but no I don't put Tesla in the Amazon category they have not proved to me that as a financial model and economic model is going to work but no I don't also don't like two short great products that's not that's not my deal what about Apple in that case Apple I don't find nearly as exciting as say Amazon Facebook or Google so hardware company I understand they had they have an app platform but you use their products you consider them great products I do think they're great products but they're probably no better than Samsung's but they have a great brand I just think I don't see the the under our under earning that I see in these other companies of anything they're probably over knee in terms of the March and they're making so I don't own that also not shorted anything you know I know that we've had a position in work day I think may be trimmed Comcast we could talk that you know Citigroup and Chubb I think are some of any anything there that interests you Thames Attica Lee for 2018 well I love workday because it fits in the new economy we're talking about I think on the elbows right who runs the company it's just an incredible CEO co-founder of obviously PeopleSoft and workday he gets the whole thing in enterprise the other names not that interesting to me long time one thing I wanted to circle back to we were talking about earnings and one of the things people get excited about still is tax reform and the prospect they have for boosting earnings next year and maybe a little bit beyond and I know you're not you didn't vote for the president um has he won you over yet do you like this tax plan do you think it will be good for corporate America and for the American economy I had sure that is quite nuanced on your network the day after the election I said I was very excited about the prospects for deregulation and tax reform I thought there was a good chance they could boost the economy I was particularly excited about the house program a better way and I thought it was the first program actually I had seen in decades which would address our fundamental problem in the United States which we over consume and we under invest and literally all they had to do was sign it but secretary minuchin had other ideas and to me it's just been a huge missed opportunity do you like do you think that the current tax reform plan is sound no having said that there are some things that that are helpful in it that go a little bit of the way a better way went first of all there's expensing that's obviously Pro investment like the better way but again very muted and carved out for some of their buddies there's ant ducked ability is I think we got too much debt in this country and we don't have enough equity and the final thing is you've really really broadened the tax base so a lot of individuals are getting tax cuts do you get a tax cut under the plan no I'll get a 600 basis point increase does the estate tax repeal help you that must help you is that gonna be repealed or the raising the ceiling I guess maybe that won't do too much I'm I'm hoping to end up pretty near zero your personal holdings so I don't really look at the estate tax I don't like the repeal of the estate tax I do I do like this idea of 10 or 15 million so somebody's nest egg but but repealing 300 million dollars I don't get the other the other thing I should have mentioned is moving the tax system of terrible territorial base not as good as the border adjustment tax but you wanted the border adjustment tax I was wildly in favor the border adjustment tax and to me it was again it was a very elegant solution of the problem we were over consumer and under investing unfortunately mr.
