Druckenmiller says risk-reward in stocks is worst he's seen

Stanley Druckenmiller said the risk-reward calculation for equities is the worst he's seen in his career, and that the government stimulus programs won't be enough to overcome real-world economic problems.

"The consensus out there seems to be: 'Don't worry, the Fed has your back,'" Mr. Druckenmiller said Tuesday during a webcast held by The Economic Club of New York. "There's only one problem with that: our analysis says it's not true."

While traders think there is "massive" liquidity and that the stimulus programs are big enough to solve the problems facing the U.S., the economic effects of the coronavirus are likely to be long lasting and will lead to a slew of bankruptcies, he said.

"I pray I'm wrong on this, but I just think that the V-out is a fantasy," the legendary hedge fund manager said, referring to a V-shaped recovery.

Mr. Druckenmiller's remarks are among the strongest comments yet by a Wall Street billionaire on the bleak outlook facing the U.S. They also stand in contrast to the optimism that has pushed the S&P 500 index to rally almost 30% since its March low even as the pandemic has brought the economy to a standstill, seized up credit markets and ended the longest bull market in history.

The damage spurred the Federal Reserve to unveil a raft of emergency lending programs and Congress to unleash almost $3 trillion in stimulus funds. But those programs aren't likely to spur future economic growth, Mr. Druckenmiller said.

"It was basically a combination of transfer payments to individuals, basically paying them more not to work than to work," he said. "And in addition to that, it was a bunch of payments to zombie companies to keep them alive."

Mr. Druckenmiller said he thinks that the current liquidity will soon shrink as U.S. Treasury borrowing crowds out the private economy and even overwhelms Fed purchases.

Mr. Druckenmiller, 66, the former chief strategist for George Soros, converted his hedge fund into Duquesne Family Office in 2010. His long-term track record, making returns of about 30% a year over three decades, established him as one of the world's top money managers. He has an estimated net worth of $5.8 billion, according to the Bloomberg Billionaires index.

Like other investors and Wall Street executives, Mr. Druckenmiller agrees that the pandemic will lead to more regulation and higher taxes.

Other highlights from the interview with Mr. Druckenmiller:

• In the future, he said he wouldn't be surprised if the Trump administration's response to the coronavirus outbreak becomes the "poster child for the worst public policy decisions ever made from a cost-benefit analysis."
• On a relative basis, he's as bullish on long-short strategies as he's been in 10 years. "That's partly because I'm worried about everything else," he said.
• He was also bullish on Amazon.com, saying people should be thankful that the company exists right now given the number of jobs created. He also praised its transition to less profitable, essential-needs products without raising prices.