What three billionaire investors think the future holds
In a recent podcast, famed U.S. investor Howard Marks noted that “there are no facts about the future, just opinions.” But that truism hasn’t stopped three of his fellow billionaires – Bill Ackman, Stanley Druckenmiller and Ray Dalio – airing their views on the prospects for the global economy and investment returns.
Ackman is the founder of Pershing Square Capital. Druckenmiller is the former lead portfolio manager of the famed Soros Quantum Fund and founder of Duquesne Capital. Dalio is founder of Bridgewater Associates.
Ackman told CNBC that investors would be prompted to buy stocks when the Federal Reserve pauses interest rate hikes. Of course, we have already seen evidence of what happens when sentiment shifts that way. Between June and August, markets surged amid a shift in sentiment towards the view inflation was peaking, a recession was probable, and the Fed would be prompted to cut rates next year.
Ackman also told CNBC if the Fed raised interest rates further and held them at higher levels for about a year, inflation would peel off organically.
“I think once people realise the Fed doesn’t have to keep increasing rates and will soon be taking rates down, that’s kind of a buy signal for markets”, adding he expected the buy signal to be triggered some time in 2023 with inflation on a downward trend, and between 3.5 and four per cent.
Meanwhile Druckenmiller, in an interview with Alex Karp, CEO of software and A.I. firm Palantir, shortly after the hotter-than-expected inflation reading Tuesday, which caused 1,200 points to be wiped off the Dow Jones, said, “There’s a high probability in my mind that the market, at best, is going to be kind of flat for 10 years, sort of like this ’66 to ’82 time period”.
Druckenmiller noted, the odds of a global recession are about as high and as severe as he had seen in decades.
Observing all the factors that lent support to financial markets since the 1980s, and those same factors that went into hyperdrive in the last decade, are now reversing. Back then the U.S. government admitted they were the problem not the solution and deregulation, not regulation was the answer. As well as being at the beginning of deregulation phase, the world was also on the cusp of globalisation, disinflation and declining interest rates.
And today, Druckenmiller sees all of this reversing, describing those leading the reversal as reformed smokers.
To be fair he caveated his comments by noting in the 45 years he has been investing this is the hardest environment he had ever encountered to try and have any confidence in a 12-month forecast. He also confessed to holding a bearish bias for 45 years.
Finally, Ray Dalio, on LinkedIn, noted investors remained too complacent about long-term inflation. With the bond market implying an average annual inflation rate of 2.6 per cent over the next decade, Dalio reckons it will be around 4.5 to five per cent, adding that with economic shocks, it may be even “significantly higher”.
“It looks like interest rates will have to rise a lot (toward the higher end of the 4.5 per cent to 6 per cent range)” noting, “This will bring private sector credit growth down, which will bring private sector spending and, hence, the economy down with it.”
Finally, Dalio said, an increase in rates to about 4.5 per cent would lead to a near 20 per cent stock market sell off.
Unlike Druckenmiller, however, Dalio did not confess to making past predictions that proved inaccurate.
So there you have it. Three very successful investors with a different take on markets – admittedly with different timeframes in mind. They may indeed all be right, but if they aren’t you can be sure of one thing; they will return next year with a new forecast!