Market review 23.04.30

Druckenmiller, plus filtering out the noise

Hello everyone,

This week, I’ll discuss Mr. Druckenmiller’s latest interview before doing my market review.

There’s been a lot of volatility and bifurcation in the markets, and this week was no exception. That said, the big-picture message I’ve been sharing in the past several months remains the same.

This blog post will cover much ground. First, let’s hear from the GOAT.

Stan Druckenmiller

In last week’s post, I discussed how trend following and positioning data essentially let us ride on the coattails of the “Smart Money.” Well, some brilliant individual traders are worth tracking too.

Stan Druckenmiller is one of them. Over the past three decades, he's achieved 30% annual returns with no down year. This puts him among just the handful of billionaires that made their fortune through trading.

I track Stan not only because of his stellar long-term track record but because of his trading style. Stan trades global asset classes, holds positions between weeks to years, and incorporates price charts into his process – much like what I do here on this blog. I have less interest in tracking other billionaire traders like Jim Simons (reclusive, high-frequency quant) and Bill Ackman (chatty fundamental activist).

About once a year, Stan shares his outlook, positioning, and process. I summarized his interviews in previous years here on this blog:

• Feb ’21: bearish bonds, bullish commodities (link)

• June ’22: bearish oil short-term (link).

His calls on both those past interviews proved correct. Equally important in these interviews are insights into Stan’s trading lessons and process.

This week, Stan gave another rare interview. Please watch it here:

Here’s my summary of it:

• Outlook:

  • Stocks likely to be higher in 10 years, but short-term (next 1-2 years) could be very volatile. Sees a hard landing later this year (rates & inflation fall). However, this could provide excellent buying opportunities.

  • Reiterated that this is a highly uncertain market. Stan is keeping diversified in uncorrelated asset classes and has his daily portfolio fluctuations to within 40bps.

• Current positioning:

  • Stocks: Bearish old-economy stocks, but says tech is more resilient to a recession and can outperform.

  • Bullish bonds, but says it’s a tough trade (no strong risk-reward).

  • Short USD because there’s more pressure on US yields than global ones.

  • Long gold

• Trading strategy and process:

  • Don’t trade when you don’t see a fat pitch.

  • Charts have merit. Stan likes to combine fundamentals with technicals.

  • With the higher amount of algo trading, some trading strategies have lost their edge in the past 20 years. This reminds me a lot about Wayne Gretzky saying that it’s harder to score now.

Stan is very much aligned with market trends, which we’ll now look at in the weekly review.

Intermarket Analysis

These posts can sometimes seem redundant, but they serve as a good reminder of the bigger picture.

Before I begin, I want to reiterate that this market is highly bifurcated. As a result, not all equities and commodities can be broadly categorized as bullish or bearish.

My view remains bullish on select equities [tech (especially biotech), discretionary, defensives, and Japan], longer-term treasury bonds, and gold. I am bearish on oil, industrial metals, banks, REITs, and the US Dollar.

The ETF leadership board shows this quite clearly in just one visual:

Another way to see this is by simply looking at the YTD performance of major futures markets: link.

This leadership can seem somewhat conflicting, but let’s drill down into how this is all connected.