Trading legend Stanley Druckenmiller is more inclined to believe the U.S. is poised to enter a bear market than continue on an almost uninterrupted bull run since the financial crisis. To make money off those views Druckenmiller says he’s buying high growth stocks that are investing in their business and shorting so-called value stocks and cyclicals that are cutting investment and increasing returns of capital to investors.
“I could see myself getting very bearish. I can’t see myself getting very bullish” Druckenmiller said at the New York Times DealBook conference at the Whitney Museum of Art on Tuesday.
The former head of hedge fund giant Duquense Capital said he’s currently buying high beta stocks that are growing faster than the wider economy. To reflect a relatively neutral view on the market Druckenmiller also said he’s also short “a bunch of value companies that buy back stock and need cyclical growth.”
Growth companies, Druckenmiller said, will likely outperform overall markets given an uncertain economic backdrop. He also favored businesses that are making long-term investments in their products and market positioning over those that are hoping to meet quarterly earnings projections and tide over stock analysts.
“We are in a bubble in what I would call short term behavior,” Druckenmiller said. To reinforce the point Druckenmiller gave a negative assessment of IBM IBM +0.00%, which he said has missed earnings only three times over the past nine years and is in the process of buying back billions in stock, and a bullish view on Amazon.com AMZN +0.61%. The difference?
While IBM is cutting R&D spending against a shrinking base of sales, Amazon has doubled that spending as a percentage of sales even as they’ve grown at double digit rates. “I love Amazon. They are investing on the future,” Druckenmiller said, before quipping, “Bezos is a serial monopolist.”
About IBM he adds, “I don’t believe in the transition.”
A spokesman at IBM objected to Druckenmiller’s description of its investments, highlighting breakthroughs like Watson and pointing out that the Big Blue’s R&D spend “has been steady at 6% of revenue and 12% of software revenue.”
Other trades Druckenmiller is toying with include shorting the Euro. His thesis is that sharp currency movements — for instance the weakening of the Yen — last years, not months. He believes the weakening of the Euro against the dollar isn’t over yet.
In May 2014 Federal Reserve chair Ben Bernanke decided to begin tapering monetary stimulus just as European Central Bank head Mario Draghi began easing. Druckenmiller thinks a renewed bout of easing in Europe and the Fed’s eventual decision to increase interest rates will create a renewed round of easing.