“Even a monkey can make money in these markets.”
That’s what billionaire Stan Druckenmiller had to say this morning in a grim interview with CNBC.
“We are still acting like we’re in a black hole,” the fund manager added. Druckenmiller’s particularly concerned with the Fed’s decision-making as the US economy rips back to its pre-Covid activity levels.
“I can’t find any period in history where monetary and fiscal policy were this out of step with the economic circumstances, not one,” he said.
Worse yet, Druckenmiller wrote in a Wall Street Journal op-ed that “Fed policy is endangering the dollar’s reserve status” and “keeping emergency settings after the emergency has passed carries bigger risks for the Fed than missing its inflation target by a few decimal points.”
“It’s time for a change,” he concluded.
Druckenmiller also discussed the “raging mania in all markets,” blaming central banks for fueling the recent froth. He says they’re risking “an asset bubble blowing up,” too, which is something we pointed out over the last few weeks.
And today, bulls are starting to hear that bubble “pop.” The major indexes plunged this morning as Treasury yields jumped higher. The 10-Year rate accelerated to 1.625%, resuming its uptrend that began last week.
Dow stocks endured the worst of the selling after hitting new all-time highs yesterday. The tech-heavy Nasdaq Composite (which is already down big from its record high) descended more gently, albeit still for a significant loss.
“Market weakness [is] due to rising inflation concerns and whether the Fed will be forced to raise rates,” explained Michael Katz, partner at Seven Points Capital.
“Initial gap had some short covering and then the markets resumed lower trend.”
In late April, analysts were almost certain that the market would punch higher. Now, investors are “selling in May” as the old adage implies. But should a correction to finish out the month surprise anyone?
No, not really. Inflation is rising, earnings season is finished, and nobody wants to work.
Job openings hit 8.1 million in March according to data from the Bureau of Labor Statistics (BLS). That’s the highest reading ever recorded by the BLS, and particularly alarming given that only 266k new private payrolls were added in April.
Companies are having a hard time competing with stimulus and unemployment benefits when attempting to fill entry-level positions. After significant poking and prodding, it seems that American labor is somewhat broken.
Why flip burgers when Uncle Sam’s paying the rent?
To be fair, President Biden’s attempting to fix this problem by requiring proof of “employment seeking” for that those receiving benefits. It’s a strategy that worked in the past.
We’ll see if it can get workers back into their hourly shifts.
And adding insult to injury is a dollar that’s going bust thanks to continued mass liquidity.
“The problem has been clearly identified. It’s [Fed Chairman] Jerome Powell and the rest of the world’s central bankers,” Druckenmiller said.
“There’s a lack of trust.”
That certainly seems to be true. And before the dollar situation improves, it’s likely to get a whole lot worse.
All while equities potentially face a vicious May correction on the heels of runaway inflation.