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Druckenmiller: Markets Are ‘An Absolute Raging Mania’

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Druckenmiller: Markets Are ‘An Absolute Raging Mania’

The stock market has entered the “mania” phase of the rally. This is according to legendary hedge fund manager Stanley Druckenmiller during an appearance yesterday on CNBC.

Druckenmiller says the fiscal and monetary stimulus efforts to help the country recover from the coronavirus pandemic have effectively merged the Federal Reserve and the Treasury Department. It now fuels the incredible rally in stock prices.

“The merging of the Fed and the Treasury, which is effectively what’s happening during Covid, sets a precedent that we’ve never seen since the Fed got its independence,” Druckenmiller said. “It’s obviously creating a massive, massive mania in financial assets.”

He adds that Fed Chairman Jerome (Jay) Powell did an admirable job during the initial economic lockdown, but says the additional liquidity measures are now “excessive.”

“I hear a lot of people on the air applauding Jay Powell, saying he saved the world, and I do think he did a great job in March, I think the followup has been excessive and I just want all of you guys cheering him on to remember The Maestro in 2005 and how that worked out.”

Druckenmiller said investors are drunk on the punch of low interest rates and the un-ending belief in the “Fed put.”

“Everybody loves a party … but, inevitably, after a big party there’s a hangover. Right now, we’re in an absolute raging mania.”

He also takes issue with the latest round of stock splits in companies like Tesla and Apple. In such companies. prices shoot higher before the split for no fundamental reason at all.

“We’ve got commentators encouraging companies to do stock splits. Companies then go up 50%, 30%, 40%, big market cap companies on stock splits. That brings no value, but the stocks go up.”

From August 11 when Tesla announced it would do a 5-for-1 stock split until it took effect on August 31, the stock rallied 82.5%. Apple announced a 4-for-1 stock split on July 30, and from that day until it took effect on August 31, the stock jumped 34.2%. Both stocks have fallen significantly since the split.

With so much uncertainty in the markets, Druckenmiller says he doesn’t know which way the markets will head going into the election.

“I have no clue where the market is going to go in the near term,” he said. He further stated, “I don’t know whether it’s going to go up 10%; I don’t know whether it’s going to go down 10%.”

He says the recent dip in the markets still doesn’t bring us to a fair valuation, because he says that doesn’t matter anymore.

“I just want to remind people that there is no valuation support because we dropped 10%. That hasn’t mattered because we are so far outside the valuation realm, with the Fed doing what they are doing that it doesn’t matter. I would say the next three to five years are going to be very, very challenging.”

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Gold ‘Frenzy’ To Build Around Election, Platinum Could Soar 50% By Year-End

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Gold ‘Frenzy’ To Build Around Election, Platinum Could Soar 50% By Year End

Peter Hug, head of the precious metal division at Kitco, believes the Fed’s decision to hold interest rates at near-zero through at least 2023 is bullish for precious metals and particularly gold. He also mentioned the road platinum can head to by the year’s end.

“About three Fed meetings ago they indicated they would hold rates at pretty much zero through the end of 2021 into early ‘22, today they’ve extended that by an additional year, there have been some analysts that are suspecting they will keep rates at zero right through 2024, so we’ve got another almost four years of zero interest rates to look forward to,” said Hug.

“The Fed being a bit more accommodative on inflation indicates to me that it’s a very positive environment for hard assets in general but I think the metals as well will continue to move higher over the next period of time based on the dovishness of the Fed, global central banks and the uncertainty of the US election coming up in about six weeks.”

The State of the Gold and Silver Markets

Hug said the current consolidation phase is a great sign of the overall health of the gold and silver markets. This comes after the frenzy in the gold and silver markets about a month ago.

“The market has been consolidating, which is a very good sign, especially for gold. Gold has been consolidating between our support level of 1925 and 1975 for the better part of two weeks. Silver seems to be between $26.50 – $27.50 range and consolidating as well. The fact that people are not selling into a market that is as frenetic as it was a month or six weeks ago, indicates to me that this market is setting up for the next leg higher once we get through this consolidation phase.”

Availability and Premiums

The gold and silver markets are taking a bit of a breather and the mania has slowed a bit. With this, Hug said the availability of gold and silver coins is getting better. He said premiums are coming down as well.

“On the gold and silver side, dealers are starting to show inventory. That’s not a result of increased production, it’s more a result because of this consolidation phase, retail investors have started to pull back on the markets so there’s not as much buying frenzy in the physical space right now, I think that changes if gold gets north of $2,000 again. But this consolidation of $50 range in gold and the $1, $1.50 range in silver has basically dried up the demand at these levels.”

“So production is still coming on board and dealers are starting to build inventory. And because of that you are seeing premiums come down. Silver maple leafs you can get, again, depending on quantity, somewhere between $5-6 over spot, Eagles are down somewhere between $5-7 over spot, so you are starting to see as this market stays sideways and we don’t see another rush into the buying side from the retail investor, you give it another 2-4 weeks and I think there will be reasonable inventory on the market and premiums should come down.”

Volatility to Return Soon?

Hug said that if you are looking to acquire gold and silver coins, you shouldn’t wait long as we could see volatility return very soon.

“I caution that past October 15 the market is going to be very volatile as we go into the election.”

Other than gold or silver, Hug sees a huge opportunity in the platinum space. There, he expects prices to climb 50% by the end of the year.

“I’m constructive platinum. It is also consolidating in the $900-950 range, but I do anticipate platinum to be north of $1000 and then look to $1200 possibly $1400 before year end.”

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US Billionaires Got Richer During Pandemic by $845 Billion

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US Billionaires-featured

US billionaires got richer during the pandemic by a tune of $845 billion. This represents a 29% increase from the time the Covid-19 lockdowns started until now. While the stock market crashed during the early days of the pandemic, it has since recovered. Along with recovery are net worth increases for America’s billionaire. Among the pandemic’s big winners of 2020 were Jeff Bezos, Elon Musk, and Mark Zuckerberg. Also in the list were investor Warren Buffett, Oracle CEO Larry Ellison, and ex-NY Mayor Michael Bloomberg.

RELATED: Jeff Bezos Is Now Worth $200 Billion

In a report released Thursday, the Institute for Policy Studies and the Americans for Tax Fairness (ATF) said the total net worth of 643 of the nation’s richest people rose from $2.95 trillion to $3.8 trillion.  

This is equal to a 29% increase between March to September. The report based the numbers on Forbes’ annual billionaire’s report and real-time data. 

Big Winners

Jeff Bezos, the founder, and CEO online retail giant Amazon is now the world’s richest man. The pandemic forced people indoors and played right into Amazon’s online strategy. As millions switched to online shopping, demand for Amazon’s services skyrocketed. Amazon shares zoomed along with 40% in 2020, as the company racked up billions in orders. People bought groceries, medicine, household products, and entertainment items on Amazon’s sites. As the company grew richer, so did its CEO and majority stockholder. On August 19, as stock prices of Amazon went up, his net worth exceeded $200 billion. As of September, Amazon stock has fluctuated and Bezos’ current worth is $184 billion. 

Another rich guy that got even richer was Tesla’s founder and CEO Elon Musk. Tesla’s value grew five times its January price. By August, the company’s stock split pushed his personal shares to $104 billion. This allowed him to join the coveted centibillionaire club. Compared to his March net worth of $24.6 billion, he’s now over four times that. As of September, with Tesla dropping value, Musk’s worth has dropped as well to $88 billion. 

Facebook’s Mark Zuckerberg, who was worth $107.6 billion in August (now down to $93.7 billion). Facebook stock rose from $209 in Jan to $303 in August, making his 13% stake worth over $100 billion. Like Musk, he also joined the centibillionaire club this year. 

“COVID crisis supercharges inequalities”

Chuck Collins, director of the Institute for Policy Studies’ Program on Inequality, and co-author of the report said he was somewhat shocked by the figures. He added that the COVID crisis is “supercharging America’s existing inequalities.” He said, “I would have thought maybe six months into this that things would have shaken out – that everybody would take a hit.” 

“The difference is stark between profits for billionaires and the widespread economic misery in our nation. It sort of dramatizes the unequal sacrifice and profiteering element of the wealth accumulation at the top.”

Meanwhile, Covid-19 infected 6 million Americans and killed more than 200,000. As businesses collapse, the economy outside of Wall Street is in recession. More than 50 million jobs vanished in the pandemic. At present, 14 million Americans remain unemployed. Even those lucky enough to still have jobs got hit. Average work income fell by 4.4.%, per Bureau of Labor Statistics data. Outbreaks are still prevalent, even as a vaccine remains under development. 

As such, the economy’s reopening remains slow. 

Even local governments are feeling the pressure. States and cities are hamstrung with crippling deficits. California declared a $54 billion deficit, while New York City is looking at a $9 billion loss in revenue. From now until 2022, state budgets face a $555 billion deficit. This is according to the Center on Budget and Policy Priorities.

COVID-19’s unique effect made those with better plans during the pandemic fares better than most. In the case of Amazon, people flocked to their site when going out posed safety issues. For the others, the rise in stock reflected more on how they handled their business during the crisis. Some people are just quicker to seize on opportunities, even those coming from a crisis.

Watch this as Bloomberg reported last July 2020 on how billionaires got $637 billion richer during the pandemic:

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Should we begrudge the rich getting richer, especially at a time like this? Do they deserve this success? Let us know what you think by leaving your thoughts on the comment section below.

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Fed Keeps Rates At Zero, Powell Says More Fiscal Support Needed

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Fed Keeps Rates At Zero, Powell Says More Fiscal Support Needed

The Federal Reserve wrapped up its last meeting before the November elections. It announced that it would keep rates at essentially zero until at least 2023. This serves as a signal that it doesn’t see inflation as an issue at all for the foreseeable future.

Fed Chairman Jerome Powell said, “We’re going to continue to monitor developments, and we’re prepared to adjust our plans as appropriate.”

“With inflation running persistently below this longer run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved,” the Fed’s post-meeting statement said.

Uncertainty and the Stock Market

However, the Fed’s latest projections have core inflation staying below their 2% target until 2023. This leaves many observers unsure of the Fed’s actual plan to spur the inflation they desire. This uncertainty caused the stock market to drop after the announcement.

“He noted that targeting an inflation overshoot for ‘some time’ as the statement says, means that they are not targeting a ‘sustained’ overshoot. So how long is ‘some time’ if it isn’t sustained?'” asked AB economist Eric Winograd. “That imprecision is a problem that the committee is going to have to solve to reap the full benefits of the framework shift. It’s not a coincidence that the stock market, which had been in positive territory, flipped negative after the chair’s comments.”

“He’s the great and powerful Oz. Investors got duped. They thought enhanced forward guidance meant something, but when they peeked behind the curtain they realized the Fed didn’t do anything, and the market rolled over,” said Michael Arone, chief investment strategist at State Street Global Advisors.

Jon Hill, a senior fixed-income strategist at BMO, added “This is dovish – lower rates for longer, higher equities, weaker dollar. The Fed is saying we’re not hiking in 2023, maybe in 2024 … What they’re saying is these are our goals. We expect to have just barely met them and even then, they’re not raising rates.”

Stimulus and Economic Recovery

Stepping ever-so-slightly into the political realm, Powell said that Congress should pass another stimulus package to support the economic recovery. He then identified unemployment aid, small business relief and funding for state and local governments as three key areas.

“More fiscal support is likely to be needed,” Powell said. “The details of that are for Congress, not the Fed.”

Republicans have repeatedly stated that they won’t provide additional funding to bailout poorly managed cities and states as part of any additional stimulus bills.

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