Tags: Stanley Druckenmiller | Fed | Bubble | economy

Druckenmiller: Fed Bubble Will Not End Nicely

Druckenmiller: Fed Bubble Will Not End Nicely
(Dollar Photo Club)

By    |   Wednesday, 04 November 2015 12:00 AM

Hedge fund manager Stanley Druckenmiller warns that the Federal Reserve has inflated an economic bubble that is poised to burst.

The chief executive of Duquesne Capital said "the central bank has created a bubble of short-term investing through its near-zero interest rates and quantitative easing," CNBC reported.

"All you do when you're doing this is you're pulling demand forward to today," Druckenmiller said Tuesday at the annual DealBook conference.

"This is not some permanent boost you get. You're borrowing from the future. I think there's been such a misallocation of resources that this has gone on so long and unnecessarily (and) the chickens will come home to roost."

Druckenmiller didn't specify exactly how he thinks it all will end, but believes the Fed policies have not only encouraged risky behavior but also have added to income inequality problems by shifting wealth to asset owners, CNBC reported.

"Over six years when you have zero rates and quantitative easing you move investors out the risk curve," Druckenmiller said. "You cause corporations to start acting in bizarre ways."

He isn’t the only high-profile voice to warn of a bubble.

The Federal Reserve has inflated an asset bubble and that will plague the stock market "disappointing returns," warns Marc Faber, publisher of The Gloom, Boom & Doom Report.

"Say you're a young person and you're just starting to work. So take me in the 1970s. In the U.S., with 20 hours of work, I could buy the S&P 500. Now you need more than 90 hours of work to buy the S&P 500 if you're young, with a medium income," Faber told CNBC.

"The Fed has basically created with their colleagues in Japan and at the European Central Bank (ECB) and the Bank of England (BOE), they've created a colossal asset bubble. And the returns going forward will be disappointing."

Global central banks have created easy liquidity in markets via zero interest rate policies, and sometimes negative-rate policies, as well as through asset purchases.

In addition, Republican presidential front-runner Donald Trump recently warned The Hill of a looming economic recession because the stock market has entered into another bubble.

“We’re in a bubble right now anyway,” Trump said, referring to social media companies that he says have initial public offerings worth “billions” but “haven’t even made 10 cents.”

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Hedge fund manager Stanley Druckenmiller warns that the Federal Reserve has created a type of bubble that won't end well.
Stanley Druckenmiller, Fed, Bubble, economy
Wednesday, 04 November 2015 12:00 AM
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