Stanley Druckenmiller used a closed-door meeting in New York to attack the Federal Reserve's dovish camp and warn that the artificial intelligence trade may be sliding into an earnings bubble.
According to the Financial Times, Druckenmiller said Thursday morning at a private conference hosted by Piper Sandler in New York that rate cuts were "no longer necessary." He also said: "Fed governors keep saying the federal funds rate is restrictive. That's ridiculous."
Druckenmiller has long drawn attention in macro circles because of his ties to prominent U.S. policymakers. He was described as a longtime mentor to Treasury Secretary Bessent and Federal Reserve Chair Warsh. He also worked for George Soros and took part in the historic bet against the British pound. His family office, Duquesne Capital, built substantial wealth, and Warsh had been a partner at the firm before becoming Fed chair.
He says yields still look low relative to the backdrop
On Thursday, the 30-year U.S. Treasury yield rose 7 basis points to 5.36%, the highest level since 2007. The 10-year Treasury yield was also nearing the 5% mark. The report said markets were increasingly pricing in expectations that the Fed will raise rates next week, pushing short-dated Treasury yields higher as well.
Druckenmiller said that, given the current economy, the wave of capital spending and the global fight for capital, bond yields were, at worst, still too low. He called the recent rise in yields a "slow, fundamentals-driven move higher" and said the trend was "not troubling."
"I believe in common sense. You only need to look at asset prices around the world," he said.
Druckenmiller also said Warsh is "one of my closest friends" and called him "a terrific Fed chair," while adding that he is no longer in direct contact with him.
AI has driven profits, but the position has been cut sharply
Druckenmiller said Duquesne has made strong returns from AI and that most of the firm's recent profits came from AI bets rather than traditional macro positions in currencies or bonds. Even so, he said he has become much more cautious.
He disclosed that Duquesne's AI position has been reduced to 20% of its level six months ago.
"This whole AI wave has been an incredible ride for us," he said. "But I think the buildout cycle is late enough that people need to start getting careful."
He also said a Wall Street narrative was making him uneasy: the idea that strong corporate earnings can keep driving markets higher without limit.
"We may well be in an earnings bubble because this AI buildout boom will end," he said. "Frankly, banks are doing AI deals too, and those people made hundreds of millions of dollars taking these companies public."
Druckenmiller added that part of his understanding of AI comes from younger analysts at his firm who are "embedded in AI research lab circles."
Still short EUR and GBP, but not willing to short USD
On currencies, Druckenmiller said he has been short the euro and the British pound since the start of the year, though he stressed that the position size is far smaller than in the past. He said he once put on currency trades equal to twice his net worth.
He said he is not willing to short the U.S. dollar because the United States has a major global advantage in AI, while Europe is "not even on the field" in that race.
By Yang Chen, Wall Street CN.