Billionaire investor Stanley Druckenmiller warns there are ‘more shoes to drop’ and says Silicon Valley Bank was ‘probably the tip of the iceberg’

Stanley Druckenmiller fears a recession is looming after more than a year of aggressive interest rate hikes by the Federal Reserve that have failed to stifle inflation. The famed hedge funder, which now operates the Duquesne Family Office, said Wednesday that despite the economy’s recent resilience, characterized by low unemployment and positive first-quarter GDP growth, it believes a “landing brutal” is inevitable.

“Our central case is that there are more shoes to drop, especially – in addition to asset markets – economically,” he said. told Bloomberg Wednesday.

For years, Druckenmiller has criticized Fed officials for bursting an asset bubble in stocks, real estate and other sectors after the global financial crisis with their easy money policies. And even after the Fed shifted its stance and started raising rates in 2022, resulting in a dismal year for markets, he thinks there’s more downside to come — it wasn’t the breakout of the bubble.

The seasoned investor argued that high interest rates could lead to more problems in key sectors of the economy, like what happened with regional banks in March, when Silicon Valley Bank quickly made bankruptcy, forcing regulators to step in and support depositors. He pointed to the struggling commercial real estate market, and in particular the office sector, which Fortune previously reported is in the midst of a crisis right now – as an area that could be in trouble. But he also warned that a “credit crunch” could be underway as banks’ capital dries up and they take on less risk amid slowing economic growth.

“There’s a lot under the hood when you come out of this type of environment, the biggest asset bubble ever, and you drive interest rates up 500 basis points in a year, I think the probability is that Silicon Valley Bank, Bed Bath & Beyond, they’re probably the tip of the iceberg,” he said.

Druckenmiller has been sounding the alarm about the potential for a US recession in 2023 for over a year now. The billionaire, who has had no down years as an asset manager, said in September last year that he “would be amazed if we didn’t have a recession in 23”.

“I don’t know when, but definitely by the end of ’23. I won’t be surprised if it’s not taller than the so-called average garden variety,” he told the investors at CNBC’s Delivering Alpha Investor Summit.

Later that month, Druckenmiller warned that higher interest rates could slow economic growth, leading to a “high probability” that the stock market would be stable for a decade. And in May this year he repeated his dire warnings, arguing that the economy was on the verge of a hard landing, and when it crashes, bankruptcies will rise, unemployment will jump over 5% and profits companies will at least fall. 20%.

Fellow billionaire investor Jeffrey Gundlach, the founder of investment firm DoubleLine Capital, known as the “king of bonds,” also worries that the economy is currently on shaky ground. Gundlach told DoublineCapital investors in a webcast on Tuesday that economic indicators are “absolutely in the middle of a recession,” CNBC reported.

He pointed to the Conference Board’s Leading Economic Index (LEI), which declined by 0.6% in April and by 4.4% between October 2022 and April 2023. The LEI is intended to help predict turning points business cycles and includes things like building permits, unemployment claims and the ISM new orders index, which tracks manufacturing company orders. The Conference Board’s Justyna Zabinska-La Monica, senior manager of business cycle indicators, said in a statement that the LEI “continues to warn of an economic downturn this year.”

“It’s pretty clear that we look like we’re at the start of a recession soon,” Gundlach said of the data.

Yet there is an elephant in the room here – AI

Tech-driven euphoria has gripped investors in recent months, leading to a surge in AI stocks and ETFs. And Druckenmiller, who is worth nearly $10 billion, according to Bloomberg’s Billionaires Index, said Wednesday he saw opportunities in technology even as valuations were stretched.

“They haven’t separated the wheat from the chaff yet, but I believe, unlike crypto, that AI is real and could be as transformative as the internet,” he said. .

This story was originally featured on Fortune.com

More Fortune:
5 side businesses where you can make over $20,000 a year, while working from home
Looking to earn some extra cash? This CD has an APY of 5.15% right now
To buy a house? Here’s how much to save
This is how much money you need to make annually to comfortably buy a $600,000 home

Leave a Comment