Gold gets thumbs-up from 2 heavyweights: Stanley Druckenmiller and Nobel economist Myron Scholes
Gold just got bullish endorsements from two major figures in the world of investing and economics: Billionaire Stanley Druckenmiller, formerly of Duquesne Capital Management, and Myron Scholes, a Nobel Prize-winning economist, emeritus finance professor at Stanford, and chief investment officer at Janus Capital Group.
Druckenmiller whom Bloomberg described as possessing one of the best long-term track records in money management, with average annual returns of 30% from 1986 through 2010, when he closed his fund reaffirmed his interest in gold at the Sohn Investment Conference in New York on Tuesday.
Radical dovishness from Fed: For Druckenmiller, the stock market is skating on thin ice. Higher valuations, three more years of unproductive corporate behavior, limits to further easing and excessive borrowing from the future suggest that the bull market is exhausting itself, he said.
Druckenmiller blasted the Federal Reserves money-printing binge of the past decade. By most objective measures, we are deep into the longest period ever of excessively easy monetary policies, he said. Despite finally ending QE, the Feds radical dovishness continues today. By most objective measures, we are deep into the longest period ever of excessively easy monetary policies. In other words, and quite ironically, this is the least data dependent Fed we have had in history.
He added: The Fed has borrowed from future consumption more than ever before.
Get out of the stock market: Recent volatility in stocks has turned Druckenmiller even more ultra-bearish. The conference wants a specific recommendation from me. I guess Get out of the stock market isnt clear enough, he said.
Volatility in global equity markets over the past year, which often precedes a major trend change, suggests that their risk/reward is negative without substantially lower prices and/or structural reform, he added. Dont hold your breath for the latter.
Because of rampant monetary-policy experimentation that now includes negative interest rates, which he deemed absurd, Druckenmiller revealed what hes banking on. Some regard it as a metal, we regard it as a currency, and it remains our largest currency allocation, he said, without actually articulating the word gold.
More inflation, lower growth: Meanwhile, across the country at the Milken Institute Global Conference in Los Angeles, Scholes gave an interview also recommending gold.
Scholes was awarded his Nobel in 1997 for his work with Robert Merton (and his late colleague Fischer Black) in creating a pricing model to determine the value of financial derivatives. Their formula is now in widespread use by practically every options trader today. (The major black mark on his career was his involvement in the failed Long-Term Capital Management hedge fund, though he asserts, I was not running the firm, let me be very clear about that.)
Now Scholes is warning that stagflation is about to rear its ugly head. The possibilities of inflation are much greater these days than previously and basically economic growth is going to be damped, and basically that being in bonds is not going to be helping you as much as in the past, in the sense that in the past weve always said that bonds were negatively correlated with equities, but today it seems that correlation is more volatile, he said.
Gold, silver as stocks see downside: Confirming that his models are predicting stagflation, Scholes said that inflation-protection assets are good, such as gold. Break-evens, TIPS, gold, agricultural commodities, other types of basic commodities that one could invest in, including silver.
Scholes also sees dangers ahead in stocks, predicting the risk of equities more to the downside. ... Were going to have much more downside than the market had anticipated before.
There you have it: Two formidable investors with sterling reputations, speaking on separate coasts, both endorsing gold as the tonic needed to weather the dark clouds on the economic horizon.