Stanley Druckenmiller says the 'animal spirits' are back in the markets; Nate Anderson's retirement is a blow to the investing world; The newest Berkshire Hathaway book on my reading list

January 21, 2025

1) The biggest news for investors over the long weekend was that President Donald Trump took office yesterday...

And, irrespective of my (or anyone's) political views, I think he is likely to be good for stocks – as he was during his first term until the pandemic hit.

That's not only because of the fundamentals behind his administration (e.g., lower corporate taxes, less regulation, relaxed antitrust policies) but because of what investing legend Stanley Druckenmiller called "animal spirits" in an interview with CNBC yesterday: Stanley Druckenmiller says 'animal spirits' are back in markets because of Trump with CEOs 'giddy'. Excerpt:

Billionaire investor Stanley Druckenmiller believes Donald Trump's re-election renewed a jolt of speculative enthusiasm in the markets and surging optimism within businesses.

"I've been doing this for 49 years, and we're probably going from the most anti-business administration to the opposite," Druckenmiller said on CNBC Monday. "We do a lot of talking to CEOs and companies on the ground. And I'd say CEOs are somewhere between relieved and giddy. So we're a believer in animal spirits."

And yet, in the same interview, Druckenmiller also had a note of caution:

While the notable investor, who now runs Duquesne Family Office, is bullish on the economy in the near-term, he remains somewhat cautious on the stock market because of elevated bond yields. He revealed that he is holding onto his short against Treasurys, effectively betting that bond prices will fall and yields will rise.

"In terms of the markets, I would say it's complicated," Druckenmiller said. "You're going to have this push of a strong economy versus bond yields rising in response to that strong economy, and that kind of makes me not have a strong opinion one way or the other."

Here are two video clips from the interview:

I'm largely in agreement Druckenmiller's "cautious" outlook, as I detailed in my January 3 e-mail – especially with this comment: It's "one of the most unattractive earnings yield to bond yield in 20 years."

By this, he means that stocks are trading near the top end of their historical valuation range (the earnings yield is simply the inverse of the price-to-earnings ratio), while the safest bonds in the world, those issued by the U.S. government, are paying attractive rates greater than 4%.

So, to repeat what I wrote on January 3:

I'm not pounding the table to either buy or sell – or do much of anything except what my team and I here at Stansberry do every day: scour the markets to find an occasional gem that the market has overlooked or over-punished.

2) The investing world has one less protection for investors with the retirement of Nate Anderson of Hindenburg Research...

The Wall Street Journal has more on the story in this article from last week: Wall Street's Pre-Eminent Short Seller Is Calling It Quits. Excerpt:

Nate Anderson, the short seller who wiped billions of dollars off the market values of companies including Nikola (NKLA) and Icahn Enterprises (IEP), is shutting down his firm, Hindenburg Research. He cited the toll the work took on his well-being.

"I've spent most of the last eight years either in a fight or preparing for the next one," he said in an interview with the Wall Street Journal.

Anderson said he felt that he and Hindenburg had accomplished what they had set out to do, showing it was possible to build a business from hunting fraud and other issues in public and private markets. He hopes to share resources and training materials soon so others can use Hindenburg's tactics in their own investigations.

This is an unfortunate trend, as the article notes:

Prominent short sellers have retreated in recent years. Online armies of individual traders targeted those who bet against the rapid rise in GameStop (GME) shares, including the now-defunct Melvin Capital, which lost $1 billion in a single day. The short seller Andrew Left was indicted last year on allegations that he manipulated stock prices. He has pleaded not guilty.

The scrutiny and risk, as well as a decadelong bull market and the rise of multistrategy funds, has made short sellers something of an endangered species. Jim Chanos, whose short of Enron became legendary, closed his once $6 billion fund in 2023. Well-known hedge-fund managers such as Bill Ackman and Daniel Loeb have shied away from publicly shorting in recent years.

I've covered many of Anderson's reports/warnings over the years, almost all of which proved prescient – stocks like Nikola, Icahn Enterprises, Tingo Group (TIOG), and India's Adani Enterprises.

Anderson had one of the best records in the business... 81% of the stocks he targeted have traded down, as the below table from this post on X shows:

Some investors (and all management teams of targeted companies!) demonize activist short sellers. But as I've written many times, investors should celebrate them.

In my July 3 e-mail, I discussed this in greater depth:

As I've argued in hundreds of my e-mails over the years, the stock market is filled with hype, fads, frauds, and plain old overvaluation. This leads to many wildly overvalued stocks – and huge losses for average investors duped into investing in them.

There are huge forces at work pushing stocks higher than they should be, led by company executives, who stand to make millions (if not billions) of dollars if their stocks go up a lot, even briefly and unsustainably.

They, in turn, are almost always cheered on by Wall Street "analysts" (I use that term loosely, as most simply parrot what companies tell them) and the media.

And as I continued, "not much" is protecting investors:

Regulators can't do anything about hype and overvaluation, just fraud – and are so outmanned and outgunned that they can only address a fraction of it (and even when they do, it's usually long after the stock has crashed).

So short sellers – especially those courageous enough to go public with their work – are a critical factor that can protect investors, as hundreds of examples and lots of academic research show.

3) I'm looking forward to reading this new book that captures the highlights of the past three decades of Berkshire Hathaway (BRK-B) annual meetings: Buffett and Munger Unscripted: Three Decades of Investment and Business Insights from the Berkshire Hathaway Shareholder Meetings.

Here's a New York Post article about the book and its author: How Buffett and Munger helped Americans become savvy investors. Excerpt:

For decades, [Berkshire's] Annual General Meeting (AGM) of shareholders in Omaha became a must-see event, as investors and analysts quizzed the pair and tried to uncover their investment secrets and strategies.

But unless you attended in person, you only had access to what people remembered and reported back. "For one of the financial world's most storied events, the Berkshire Hathaway annual meetings were long available to just a relatively small group," writes [book editor Alex W. Norris].

In 2018, however, Berkshire released the archives from all shareholder meetings dating back to 1994 at which point Morris began the "daunting task" of trawling through hundreds of hours of video and more than 1,700 questions asked by attendees, upon which his book is based.

"Buffett and [Charlie] Munger's answers represent a treasure trove of investment and business wisdom," he writes. "The goal of this book is to unlock that trove and to make it accessible to all."

I began attending the meetings when they were off-the-record and made a name for myself in the investing world by taking and publishing my copious notes.

But even when Buffett allowed the meetings to be livestreamed, I kept coming – and have now been to the last 27! As I explained in my May 6 e-mail:

Longtime readers know that other than my parents and my wife, Berkshire CEO Warren Buffett and his lifelong business partner Munger have had the biggest impact on my life.

They didn't just help teach me investing – the reason I originally started coming to the Berkshire meetings – but in every other aspect (and the reason I keep coming to these every year): habits, how to treat people, becoming a learning machine, integrity, duty, etc.

And when I go to the annual meetings, I also enjoy catching up with old friends, making new ones, and meeting dozens of my longtime readers and paid-up subscribers...

Best regards,

Whitney

P.S. I welcome your feedback – send me an e-mail by clicking here.