Stanley Druckenmiller Interview
by Marc Lerner
An interesting interview with Stanley Druckenmiller, a well-respected manager who used to work with George Soros and also ran his own fund, has been published. In it, Druckenmiller discusses – amongst other things – his view on China and commodity prices going forward. Druckenmiller points out that the 2009-2011 stimulus in China is “coming back to bite” in the form of fast-growing credit amid a slowing economy, a dangerous combination. He points out that China’s investment to GDP ratio (47%) is historically unprecedented and quite obviously unsustainable, and that in some areas of China infrastructure capacity is, as a result, way ahead of demand. He also thinks that China is serious in its attempts to rebalance its economy away from fixed asset investment, and diagnoses the supply response by commodity producers around the world to the boom in China as a “massive misread”.
At Valor Private Wealth, this entirely agrees with our view on China and commodities such as iron ore going forward, although we would add that even if China doesn’t turn out to be serious about rebalancing, they still won’t be able to prolong the credit-fuelled construction boom forever. They may, however, be able to delay it for a few more years and thus make the bust that much more spectacular. Druckenmiller also points out that whilst there have been recent innovations in the space of shale oil that have effectively put the ‘peak oil’ thesis to rest, there haven’t been comparable technological developments in the extraction of other commodities like iron ore and copper, and he think it is likely there eventually will be, making supplying them even cheaper. Whilst technological changes – and especially their timing – are very hard to predict, this is, in the long term, certainly something to watch out for as well.
On a related note, Druckenmiller thinks the most important attribute of a successful investor is not IQ but discipline – and what, he says, could be more disciplined than a machine? He goes on to envision a world in which most investing is done by computers and all but the very best investors become redundant. At Valor Private Wealth, we think our rigorous research and rational, conservative approach is far ahead of what computers today can do. Going forward, however, we’ll just have to wait and see…