How to Prepare for the Biggest Asset Bubble in History, According to Billionaire Stanley Druckenmiller

Raising interest rates helps calm asset bubbles by increasing borrowing costs and reducing liquidity. But despite big interest rate increases by the Federal Reserve, billionaire investor Stanley Druckenmiller doesn’t think the bubble has popped.

“I’m sitting here staring into the biggest and possibly the widest asset bubble – I’ve never seen it before, never studied it,” he said while attending the 2023 Sohn Investment Conference.

“It went on for 10 or 11 years and then it got to the grand finale,” he said.

If bubbles do not subside, they can burst and send shock waves through the economy.

“The worst economic outcomes tend to follow very easily designed asset bubbles,” Druckenmiller added.

So how should investors prepare for the grand finale?

Waiting for landing?

If you run a long-term hedge fund, Druckenmiller’s suggestion is to manage your exposure to the markets.

“Keep your total low, have an open mind, and if a hard landing happens, there are incredible opportunities,” he said. He added, “And I don’t want to lose these opportunities by throwing my money in now and losing about 20% or 30%, and then my head spins when these opportunities announce themselves.”

In other words, don’t go in with all your money. This way, when the market takes a turn, you will have the money and mental clarity to pick up quality assets on the cheap.

Druckenmiller finds that some attractive opportunities already exist.

Biotechnology and artificial intelligence

Billionaire Investor Points Out That ‘There’s Always Growth’

There is no shortage of growth stocks in today’s market, so which stocks should investors focus on?

“It’s really hard to tell the names, but biotech has been dramatically underperforming in the last three to five years, and there are tremendous things happening in cancer treatment and other areas,” he said.

Druckenmiller does what it says. According to his most recent filing on Form F13, the fourth-largest publicly traded holding company in his firm — the Duquesne family office — is Eli Lilly & Co., a global pharmaceutical company with extensive biotech capabilities.

Artificial intelligence (AI) is another area in which Druckenmiller sees huge potential.

“I actually think the AI ​​element is very, very real and can have as much of an impact as the Internet, literally,” he said. “It could be a great opportunity on a hard landing like my year [2001 و 2002] A great opportunity when the technology bubble burst, and companies that benefited from the Internet continued.”

The resourceful fund manager reveals that his company is “participating in artificial intelligence” by owning shares of Microsoft (NASDAQ:) and NVIDIA

Real estate

Druckenmiller also has an interesting view of real estate.

When discussing how the regional intermediary bank gets 43% of its loans in commercial real estate, he notes that “about 40% of that money is in offices”.

Office buildings are not doing well these days. Because of the major resignations and more people working from home, “we have a higher vacancy rate than it was in 2008,” Druckenmiller said.

But it’s a different story for housing

“It’s clear that housing has fallen significantly given the 500 basis point increase in interest rates,” he said.

“But unlike in 2007 and 2008, we actually have a structural shortage of single-family homes. So if things get bad enough, I can actually see that housing – which is the last thing you would think of intuitively – could be a huge beneficiary on the way out.”

The best part? It’s easy for retail investors to invest in housing — and you don’t actually need to buy a home to do it. Publicly traded REITs own income-producing properties and pay dividends to shareholders. And if you don’t like the volatility of the stock market, crowdfunding platforms allow individual investors to invest directly in residential real estate for as little as $100 through the private market.