Following is the unofficial transcript of a CNBC exclusive interview with Billionaire Investor & Duquesne Family Office Chairman & CEO Stanley Druckenmiller on CNBC’s “Squawk Box” (M-F, 6AM-9AM ET) today, Tuesday, May 7.
Stanley Druckenmiller: The Fed should get rid of forward guidance and just do their job
Stanley Druckenmiller: AI might be a little over-hyped now, but under-hyped long term
Stanley Druckenmiller: Why we’re spending like we’re still in the great depression is beyond me
JOE KERNEN: And we’ve got a lot of ground to cover with our next guest. So let’s get right to it. Stan Druckenmiller is chairman and CEO of Duquesne Family Office. I said earlier, averaging 30 percent for 30 years, never had a down year. It’s like — I think it might be like Pete Rose, kind of. I don’t think anybody will get 4,200 hits. I just don’t — I don’t — I don’t think anybody will ever again get 30 years of 30 percent of average. Do you?
STAN DRUCKENMILLER: I have no idea. I don’t know how I did it. So, I don’t even know who that person was.
KERNEN: You’ve got like — right, you got like five big bets and be commit — you do have some — some tips I saw, but I don’t — you know, it’s just an amazing record. And for anyone who doesn’t know who Stan Druckenmiller, I just wanted to say that. Last time we spoke was October, I think. So, six months or so, that’s a lifetime obviously in the markets, the economy, and especially with the Fed. And I’ve been — I know you watch, and I’ve been perplexed, and we will talk about Perplexity later, but I’ve been perplexed about the unwavering focus the Fed has had on cuts. It’s been difficult to understand because it’s been the entire time. And I’m just wondering, how do you view this period, that six-month period, where the focus that’s all we’ve heard about — did cuts make sense the whole time? What’s causing that?
DRUCKENMILLER: Thank you, and I’m happy to be here. Thanks for having me on. I was — I was perplexed with the December pivot if that’s what you’re referring to. It seemed to me the Fed was in a perfect position. Inflation was coming down, financial conditions were tightening. And to some extent, I feel like they fumbled on the five-yard line with the game on the line. I remember saying to some of my partners, that’s a speech I thought we might hear in March, as opposed to now because there’s like four or five more months that potentially could lead to inflation coming down the way they needed to come down. Instead, they set financial — financial conditions on fire again. Bitcoin — I can’t remember where it started from but it went from like 30,000 to 70,000. Equities obviously credit, interest rates. Ironically, Duquesne was a major beneficiary of it because I had spoken at a Robinhood Conference and like an idiot for forgot that there was press there, and revealed that I had a — Paul got me going in the interview and revealed that I had a massive leverage position in two years, because I thought the risk-reward I think they were like 510 or 515, the risk reward with what was going on — we could potentially pull this thing off sometime in the next year and the risk reward was — was terrific for that. I was a beneficiary because after their pivot, two years went down to 415, I didn’t get the low, but I did get 430 and — but at that point, it was obvious that financial conditions, which is one of the things that put me in them in the first place were turning — we were starting to get anecdotal from businesses, that their businesses were picking up. So I exited the position. So I was major beneficiary but once financial conditions took off, it became very clear that this thing could go either way. So I didn’t even understand why they put it on the table, but more curiously, why they and others continued to talk about — well, it’s not going to be six cuts. It’s only to be three cuts or four cuts or two cuts. I’m going, why are we even talking about cuts? Because inflation, if you remember, we did trillions of dollars of QE because it was 1.7 instead of two over a decade. But somehow now that we’re at three versus two, we’ve got to start cutting rates to bring in a smooth landing. So to me, it didn’t make any sense. It was a huge mistake. But it goes back to I don’t know whether you remember but Kevin Warsh when he was in the running for the Fed job used to talk about reforming the Fed. And I go, Kevin, well, what is the major reform we do? He says, we got to get rid of forward guidance. All this talking and all this forward guidance — first of all, we’re all wrong on the economy quite often, me included, and when you put forward guidance out, unlike me when I’m wrong who tend to change my mind very rapidly, they sort of get trapped into the forward guidance and stuck in it. And to some extent, they were stuck in this — talk about continuing to cut rates so financial conditions just continued to melt up. And finally, in — I guess a month or so ago, the Fed pivoted but then bizarrely, the last press conference seems to still be hanging on to this asymmetric directive of we’re not going to hike and we expect to cut, but we’re going to wait for the data. We’re not guaranteeing you’re going to cut, but it’s weighted that way. And for the life of me, I can’t figure out why because if you look at the six-month rate of inflation, the chart’s very clear, it comes down from very rapid rates. And now, if anything, it looks like it’s turned up. Look, I don’t where inflation’s going to be in a year. Jerome Powell doesn’t know where inflation is going to be. I don’t think anybody knows. But they worked so hard, and they did so much work when they went from basically zero to 5 percent. I’d hate to see them all throw it away here.
KERNEN: The first time I — and the first time I noticed was when he said, yeah, we’re not going to do it today but we’re close. We’re getting closer. And I didn’t know, how do you — how do you know that we’re getting — and that that went from “but we’re getting close” to “now, yeah, it’s definitely not going to be now but we think things are going to work out and they’re going to be” — he’s never taking him off the table and never talked about even saying a hike is just — I mean, he took that off the table. And a hike is not — you think a hike is off the table? Definitely, zero chance, zero percent chance?
DRUCKENMILLER: No, because there’s not a zero percent chance that inflation has the bottom. I don’t know. What I would do is just say nothing and do Fed chair used to do. When you need to raise rates, raise ‘em. When you need to cut ‘em, cut ‘em. Don’t go on “60 Minutes”. You’re not a rockstar, okay? You’re the Fed chairman. You’re supposed to be running monetary policy for the good of the country, not to be going on “60 Minutes”. And, you know, the whole thing — Bernanke did a lot of things that by hindsight I don’t feel very good about, one of the worst was forward guidance. You got a bunch of academics talking about sending message to the market. You know, as a practitioner, I’d rather them just get rid of the whole forward guidance and just do their job. When you need to raise rates, raise rates. When you need to cut them, cut them.
KERNEN: You are confounded on the reason though. So I thought you were going to give me the reason why. Is it similar to how long we stayed at zero in a hot economy with — and calling it transitory? It seems like the same side of that coin, not the flip side.
DRUCKENMILLER: They’re definitely in their press conferences the implication is it’s transitory. I don’t know what the reason is. I hope it’s not political. I assume it’s not political. I do worry that this obsession with nailing the soft landing, okay, my favorite Central Banker was Paul Volcker. He was not worried about nailing the soft landing. He put us into a terrible recession and we got 20 years of prosperity because of the pain we took for 18 months. And I’d like to remind those who think this has been in their political interests, Reagan won 49 states in 1984 after the economy was absolutely in the tank in 1982 because he did the right thing. Honestly, if you think it’s political — particularly, the Treasury actions, Donald Trump should send them a thank you note because the day Powell pivoted, gasoline was $2. It went to $2.80. It’s now at $2.55. This has been a wonderful period at Duquesne. It’s the best start I’ve had in years, and I think a lot of wealthy people know how to manage this kind of thing. The average American cares a lot more about gasoline prices than they do about stock prices, and they are getting hurt. There was a — there was an interview on your show earlier about — about people being priced out of the housing market. Inflation is 20 percent — 21 percent higher than was in 2019. To me, even politically, that’s more consequential than keeping the markets up or, you know, trying to nail the soft landing and not having a recession.
KERNEN: Let me ask you how this plays into to — it’s another I think issue of being, you know, things are going, well, and then we totally overspent in terms of fiscally as well in Bidenomics.
DRUCKENMILLER: Bidenomics — if I was a professor, I’d give them an F. Basically, they misdiagnosed COVID and thought it was — we were going into a depression. The Fed did, too. I worried about it, too, in early days. The Fed eventually pivoted, better late than never. Treasury — Treasury is still acting like we’re in a depression. It’s interesting because I’ve studied the Great Depression and you had a private sector crippled with debt, with basically no new ideas. So interventionist policies were called for and were effective. The private sector could not be more different today than it was in the Great Depression. Their balance sheets are fine. They’re healthy. And have you ever seen more innovative ideas that the private sector could take advantage of? Now, you got Blockchain, you got AI, you’ve got the whole thing. All government needed to do was get out of their way and let them innovate. Instead, they’ve spent and spent and spent, and my new fear now is that spending and the — and the resulting interest rates on the — on the debt that’s been created are going to crowd out some of the innovation that otherwise would have — would have taken place. We’ve got a 7 percent budget deficit at full employment. It’s just — it’s unheard of, and this is when you’ve got grid — grid spending. You have — I’m sorry — you got defense spending, you have data center spending —
KERNEN: And AI.
DRUCKENMILLER: And then, of course, you have green.
KERNEN: Yeah.
DRUCKENMILLER: So this spending is going to take place. You’re going to build the capital stock. How do you build the capital stock when government is intruding with regulations and all this spending? And it’s just sad, because I think we’re looking at one of the most exciting periods in terms of potential productivity enhancing investments ever. And why we’re spending like we’re still in the Great Depression is beyond me. And they haven’t stopped as you know. They’re trying to circumvent the Supreme Court to give money to kids who had the opportunity to go to college, who haven’t repaid their loans. You know, Harlem children’s own — our motto was always, get them into college so they have a shot. These are kids that went into college and we’re talking about spending hundreds of billions of dollars to put in their pockets. I assume it — I assume it’s because of the election. Even– they’re now floating ideas is for Fannie and Freddie to change the rules so you can refinance — you can take out a second lien mortgage and you get to keep the rate on the first mortgage at whatever you did during COVID. There’s one spending program or another. We don’t need spending right now. We just need the government to get out of the way and let the private sector do its thing.
BECKY QUICK: Stan, how — how much of the inflationary pressures that we see are because of fiscal spending versus the Fed? I mean, it’s kind of hard to break it down, but which would you think is the bigger problem?
DRUCKENMILLER: I’d say it’s definitely the fiscal, but the Fed’s been the great enabler. And the latest thing is, we’re going to apparently — well, we’ve already started. We’re going to shrink QT from $60 billion to $25 billion, and we’re going to land apparently at $7 trillion. Somehow because of the plumbing, all of a sudden, we need a $7 trillion balance sheet just to function. If you remember in Bernanke’s speech when we started QE, he said, don’t worry, this is temporary. The balance sheet will be back to $800 billion. This is never going to grow again. So that is — I’d say it’s mainly the Treasury because we just don’t have room for all this, and it could get worse because we need to build the capital stock. But the Fed needs to stop helping them out, and I understand Chair Powell’s statement that he wants to stay in his lane. Well, he didn’t stay in his lane during COVID, and I don’t blame him. He was encouraging fiscal spending and that was totally appropriate. But now, all of a sudden, oh, that’s — we don’t comment on fiscal policy. Well, you commented on it when you wanted them to be more stimulative. You know, somebody’s got to say something. It is interesting since — since my last interview here in October, there do seem to be a lot more recognition by various people I see on your shows and elsewhere of the fiscal situation facing us. Everybody seems to get it but Yellen, who just keeps spending and spending. And again, I think it’s done politically because it’s causing inflation and it doesn’t take a genius to figure out it’s the average American that’s getting hurt by the inflation.
KERNEN: Your excitement about — about AI sort of came into play with that discussion because you’re worried that it’s going to take a lot of investment and there’s no savings — we got to build up the defense, there’s wars everywhere. And you — you were early with Nvidia. You were early with AI. You pared back a little bit but are not less bullish on the prospects for it, are you?
DRUCKENMILLER: Well, first of all, I wasn’t early with Nvidia. My young partner was early with Nvidia. He called me in the fall of ’22 and said that he thought all this excitement about Blockchain was going to be far outweighed by AI. And I asked him how to play it and he told me I should buy this company Nvidia. I didn’t even know how to spell it. I bought it. Then, a month later, ChatGPT happened. Even an old guy like me could figure out, okay, what that meant. So I increased the position substantially. I said in an interview in June of that year that I expected to own Nvidia for two or three years, that this was a mega trend like I’d never seen, potentially bigger than the Internet. But when the stock went from 150 to 900, I’m not Warren Buffett. I don’t own things for 10 or 20 years. I wish I was Warren Buffett. And 150 to 900, yes, we did — we did cut that position and lot of other positions in late March. I just need a break. We’ve had a — we’ve had a hell of a run. A lot of what we recognized has become recognized by the marketplace now. Powell was — we expected Powell to come back and re-pivot which he subsequently did. But no, long-term, we’re as bullish on AI as we’ve ever been. And also, you just wonder, if we were all sitting here in 1999 talking about the Internet or anybody was talking about it, I don’t think anybody would have estimated it would be as big as it got in 20 years. We didn’t have the iPhone. We didn’t have Uber. We didn’t have Facebook, yada, yada. And yet, if you bought the Nasdaq in ’99, it went down 80 percent before that all came to fruition. That’s not going to happen with AI. But it could rhyme – AI could rhyme with the Internet as we go through all this capital spending we need to do, the payoff while it’s incrementally coming in by the day, the big payoff might be four to five years from now. So AI might be a little overhyped now but under-hyped long term.
QUICK: You said you’re not like Warren Buffett, but what you just did with Nvidia sounds an awful lot like what he did with Apple. He pared his position in Apple by 13 percent, and they went on to say it’s a better company than Coca-Cola or American Express or any of the other companies that they have in their portfolio, and he thinks Tim Cook is great.
DRUCKENMILLER: Yeah. Well, I will be very surprised if I don’t own Nvidia on and off next 10 years.
KERNEN: You’re so bullish on AI. Andrew, you did a great interview with Perplexity and I think that — that’s where you decided might be a place that you want to be.
ANDREW ROSS SORKIN: Yeah.
DRUCKENMILLER: I love perplexity. Again a funny story — my young partner, the one who has basically been behind all our AI play with his — with his staff. He told me, I don’t know, in January, that all the kids on the West Coast weren’t using ChatGPT or Google anymore. They were using this thing called Perplexity AI. So I, of course, tried it out and it was just unbelievable. It’s an answer machine, but the speed, but the depth of the answers and the quality and then the fact that they give you the sources if you want to go deeper, it was nothing like I’ve ever seen. If you don’t believe me, just ask ChatGPT, Gemini and Perplexity a question, and get the answer and you’ll see — you’ll see exactly what I’ve talked about.
SORKIN: Right.
DRUCKENMILLER: I fell so in love with it. We tried to get in on a round, that we were lucky enough to be accommodated. I love the founder Aravind Srinivas. He’s super aggressive, and with his team super innovative, but he’s also got humility. He’s everything we love in a founder. So there’s a land grab going on now in the answer machine business. It’s obviously a big task to take on Google, but if you think about it, Google has $300 billion in sales. If Perplexity even goes to $2 billion in sales, it’ll be a huge winner. Frankly, I’d say 90 — 95 percent of my searchers now I use Perplexity, probably the best thing I could do for the viewers today, unless they’re listening to all my other stuff. Try this thing out, you’ll love it.
SORKIN: Right. Hey, Stan, I have two questions for you. One AI -related and then one market related. On AI, in terms of these large language models, Perplexity is obviously a productized version of it. How concerned are you about the idea that that many of these large language models may turn into just commodities, it may be just a feature, if you will, of all of these services and how much economics can ultimately be extracted from them?
DRUCKENMILLER: Great question. I’m concerned. I’m open-minded of that happening. I mean, it’s one of the reasons we cut our positions back. You never know where we’re going to be in two years or three years. I also wonder, Andrew, whether Chat — ChatGPT three was a huge leap over two, three was a huge leap over — I’m sorry, four was a huge leap over three. I’m sure five is going to be a lot better than four. But the cost of these models and the incremental value you’re getting at them at some point you may hit the road. So I don’t know how long this training thing is going to go on and it may separate into different verticals. So it’s all to be determined, and it’s why I’m glad I don’t have Warren Buffett’s problem, although it’s a nice problem to have having positions so big that I can’t rotate.
SORKIN: And then, Stan, my other question given I’m in D.C., I want to ask you a political question since we’re in election year, is how you see the two candidates as it relates to the markets and to inflation? On one end, I know you’ve been very critical of this administration, the Biden administration, and how it’s approached inflation. On the other end, if former President Trump becomes the president again — of course, I imagine he will not only jawbone the Fed to have lower rates, there’s obviously this article in The Wall Street Journal we’ve talked a lot about whether they’ll have independence in the future, and then there’s issues around tariffs and the like on China and whether that will be inflationary. So how do you — how do you measure both of those things?
DRUCKENMILLER: One of the reasons I’m confused by all this asymmetric talk toward cuts, if Trump were to get elected, I could see a scenario if inflation is not squashed and eliminated by then where you mentioned it, tariffs, immigration and animal spirits because I think business will get very excited with the lack of regulation and the cessation of some of the things I talked about, inflation actually takes off again the way it did in the ‘70s. So I am open-minded. I’m not predicting this, but I’m open-minded to say under a Trump administration, inflation being 6 percent sometime in 2025. With Biden, I’m more worried about stagflation — with all the government spending, with all the tricks that Yellen’s been using to manipulate the yield curve with the way the Fed seems to have reignited financial conditions, I think the inflationary outcome could be there. But I also fear regulation and everything else preventing productivity. So I’m basically a guy without a candidate. I’m an old-style Reagan, free market, pro-immigration, anti-tariff Republican. The only free market leader in the world right now bizarrely is in Argentina of all places. Javier Milei. It’s going to be an interesting experiment. This is a highly, highly intelligent leader who was taught in the School of Austrian Economics. And it’s funny because the last time I was on, we talked about entitlements, what would I do? He cut Social Security 35 percent after he came to office. They’ve gone from a primary deficit of like 4 or 5 percent to a 3 percent surplus. They’ve taken a massive hit in GDP, basically a depression for a quarter, and his approval rating has not gone down. In addition to being highly intelligent and knowing economics, he’s a showman and so far, he’s been able to maintain the street because they like the showman part. And I think he’s got a real shot and I’m —
KERNEN: You know —
DRUCKENMILLER: I’m not only invested in Argentina. By the way, do you want to hear how I invested in Argentina? It’s a funny story. I saw — I wasn’t at Davos, but I saw the speech in Davos and it was about 1:00 in the afternoon in my office. I dialed up Perplexity and I said, give me the five most liquid ADRs in Argentina.
KERNEN: Argentina.
DRUCKENMILLER: It gave me enough of a description that I follow the old Soros rule, invest and then investigate. I bought all of them. We did some work on them. I increased my positions and so far, it’s been great. But we’ll see. I don’t know how much time the populace is going to give this guy, but so far, his popularity is maintained and —
KERNEN: Yeah, Elon Musk tweeting about — he met with him I guess yesterday and then tweeted out, I recommend investing in Argentina. I know you met with him as well and I heard from you that this — I mean, it was just so — you were so impressed that you want to tell your friends about this.
DRUCKENMILLER: He’s — he’s over the top in terms of —
KERNEN: I’ve seen some interviews.
DRUCKENMILLER: — the spectrum, but the fact of the matter is the country’s been so devastated for so long. I mean, they were the eighth richest country in the world and now I don’t what they’re — they’re like 150. So, Argentina was ready for this, but it took somebody not crazy but on the spectrum to be able to do these kind of reforms. I — it’s really the inverse of what’s going on here. We’re avoiding all the pain. We have no pain. We’re the richest country in the world and you just wonder if we continue to go down this path toward the public sector over the private sector. Look, I agree. We’re all always going to be the place that you want to invest in, but I just hate to see Argentina out-capitalizing America, and that’s kind of where we’re going with this.
QUICK: Can I just ask? If you are worried about inflation being the potential problem in another Donald Trump administration, would you be advocating for a very tough Federal Reserve chairman in that case? And I ask because I don’t think either of these candidates wants to see a strong Fed chair. Trump has been much more vocal about this in the past. I wouldn’t even say browbeating Jay Powell. He was publicly flogging him when he was his Fed chairman. What should that next Fed chair look like? What would you say to Jay Powell to Jerome Powell if he’s still in that position and continuing for a few years there?
DRUCKENMILLER: Well, obviously, I’d like a strong Fed chair but obviously, I’m not the one who’s going to be appointing him. And both candidates — probably the last thing they want because of politics is a strong Fed chair. Even Ronald Reagan forced out Volcker and replaced him with Greenspan. It tends to be the way presidents think. If Donald Trump were elected, I would tell Powell just again run monetary policy and do what he thinks is right and I hope he can bear listening to the tirade that would potentially happen if the president didn’t agree with whatever medicine was needed at the time.
KERNEN: Well, you just tell Kevin not to — not to listen to everything he said. I’m sure Kevin will be fine. Do you want to — Kevin Warsh. Do you want to talk about copper or Japan or do you do you want to leave? You can — it’s up to you. We’re at 25 minutes. Do you want to just say a couple words about — I mean, copper?
DRUCKENMILLER: I’ll just say we — we’ve been, we’ve been invested in Japan, oh, since middle to late last year. I was lucky enough to start Duquesne in 1981 and those were the era of Boone Pickens and Carl Icahn changing corporate governance, and just multiply that times 10X what’s going on in Japan. It’s an amazing situation. They’ve been in deflation for 20 years, not unlike Argentina, they’ve been through the ringer so much that they’re willing to try something much more capless. It’s funny I’m going over there in a couple weeks and I told the brokerage firm that’s helping me arrange meetings, make sure they know I’m not an activist, and they said, oh, no, no, they really like activists. They want you over there and they really like activists. That’s all you need to know, that and — that and the fact that pricing has returned. It’s a lot cheaper than here and if you believe in change, there you go. Copper is a pretty simple story, takes about 12 years, greenfield to produce copper, and you got EVs, the grid, data centers, and believe it or not munitions. These missiles all got enough copper in them and the world’s getting hot that we just think the supply-demand situation is incredible for the next five or six years.
KERNEN: And you’d invest in China, when? There’s no — there’s never too strong a word?
DRUCKENMILLER: We exited China in 2018. We haven’t made a single trade in security there other than their currency once in a while, I won’t say which way. I will never invest in China as long as the current leader is there. The reason I’ll never say never is if they had a change in leadership, I’d at least consider the situation. But to me — I didn’t invest in Russia, and I’m not investing in China. There’s so many exciting things going on in the United States, in Argentina, and Japan, why in the world would I ever want to put money in China? And frankly as an American, outside of my investment day job, I feel very good about that decision.
KERNEN: Great. We didn’t talk about colleges there, but — and what’s happening. I’ve had — I have — I’ve run out of words.
DRUCKENMILLER: — in three years, and the — and the protest will be over.
KERNEN: Yeah. We’ll see, but thanks for all the time.
DRUCKENMILLER: Becky, Joe, it’s been great to be here. Appreciate it.
KERNEN: Great to have you as always. Thank you.
DRUCKENMILLER: Thanks.
KERNEN: Thanks, Stan.
