Gold “Currency” Before the Equities Crash

Stanley Druckenmiller is a hedge fund legend on Wall Street, whose Duquesne Capital fund yielded 30% returns annually from 1986 to when he closed it with $12b in assets in 2010.  His call on the GFC saw him make $260m in 2008.

This week he continued his recent calls for an impending crash on equities markets saying:  

"Three years ago on this stage I criticised the rationale of Fed policy but drew a bullish intermediate conclusion as the weight of the evidence suggested the tidal wave of central bank money worldwide would still propel financial assets higher. I now feel the weight of the evidence has shifted the other way; higher valuations, three more years of unproductive corporate behaviour, limits to further easing and excessive borrowing from the future suggest that the bull market is exhausting itself."

In other words the easy money policies (near or sub zero interest rates and money printing / QE) we have and continue to see from central banks, and recall our RBA this week upped their participation in the same, have seen strong gains in the recent past on Wall Street.  As we’ve discussed recently, you can’t keep taking on more debt to fuel growth that is occurring slower than the rate of debt you are taking on…. He talks about the escalating accumulation of debt and artificial inflation of markets as essentially robbing from the future to ‘improve’ the present rather than taking the medicine and implementing structural reforms and highlights:

"…the fed has borrowed from future consumption more than ever before."

Tellingly Druckenmiller upped his call to buy gold.  He sees gold a little differently to some, saying:

"Some regard it as a metal, we regard it as a currency and it remains our largest currency allocation"

Pending any overwhelming news overnight, tomorrow we will show you a couple of charts that illustrate exactly what Druckenmiller is saying about central bank supported equities markets.