What Really Annoys Stanley Druckenmiller

The latest inflation numbers... What really annoys Stanley Druckenmiller... The U.S. debt is worse than you think... 'Never in history has a booming economy produced a worse fiscal result'... Wall Street is preparing for a big market move...

They say a picture is worth a thousand words...

This Digest could have gone into all the details about the April consumer price index ("CPI") report, which came out this morning. But this tweet from Bitcoin Magazine covers nearly everything I (Corey McLaughlin) would have told you...

The pace of headline inflation (4.9% year over year, as represented by comedian Kevin Hart as CPI) continues to slow from last summer's high. But many prices in narrower but important "real" sectors – like food, energy, and transportation (which includes new and used vehicle prices, airline fares, and so on) – still rose faster (former NBA star Shaquille O'Neal).

On a related note, a few Stansberry Research editors had an informative and entertaining e-mail debate today about the best way(s) to measure inflation. We'll try to share more about those ideas soon... But for now, Shaq and Kevin Hart tell enough.

Moving on, another take on the debt ceiling (sort of)...

Yesterday, I wrote about the "reasonable take" we recently heard in the "non-mainstream media" about indicators to follow for signs that a recession is imminent... or already here. Today, I want to share another valuable opinion...

It's from one of our favorite famed investors, whom we've mentioned before. He has made several prescient calls over the past several years, like how the Federal Reserve was fueling inflation for way too long... But we haven't talked about Stanley Druckenmiller in a while.

Druckenmiller made his name as a hedge-fund manager for 30 years, closed his fund in 2010 with $12 billion in assets under management, and allegedly has never had a down year investing in the markets (a claim I believe). He also famously made more than $1 billion in profits in 1992 (back when $1 billion meant something) and "broke the Bank of England" with a $10 billion short bet against the British pound sterling.

Last week, Druckenmiller gave a keynote speech at the University of Southern California business school. This priceless presentation touched on demographic trends like the aging of Baby Boomers, entitlements, and the debt-ceiling "debate," which, as he later told a Bloomberg reporter, overshadows another part of the trillions-of-dollars equation...

The spending problem...

Druckenmiller said he hopes the U.S. government doesn't go into default next month, but it's not his top concern...

Honestly, all this focus on the debt ceiling instead of the future fiscal issue is like sitting on the beach at Santa Monica worrying about whether a 30-foot wave will damage the pier when you know there's a 200-foot tsunami just 10 miles out.

As he said in the speech...

The fiscal recklessness of the last decade has been like watching a horror movie unfold.

Among other things, Druckenmiller outlined and detailed why he believes that without government spending cuts today, programs such as Social Security, Medicare, and Medicaid will have to be totally slashed in the future.

The first part of the trouble is that the U.S. national debt stands at the famous $32 trillion level without factoring in these programs...

This is what really annoys me, how no one talks about it... Do you know that the $32 trillion assumes the federal government will never make another Social Security or Medicare payment? Only government accounting could think that the government is never going to make another payment, not one. Not to me... not to you guys when you get older.

If you actually accounted for those (big) government programs, Druckenmiller said credible estimates put the value of that debt at $200 trillion. And that's not all...

The U.S. government's handling of its debt has gotten exponentially worse over the past decade. Uncle Sam is running larger, $1 trillion-plus deficits annually... years after Druckenmiller already thought the "fiscal gap" situation was bad...

What makes the last 10 years particularly horrific is that we had some golden opportunities to reduce the fiscal gap ahead of the demographic storm that is underway. After World War I and II, the U.S. quickly repaid its debt by raising taxes and restricting spending.

Contrast that with today.

After the great financial crisis but pre-COVID, when the economy boomed in 2018 and the unemployment rate hit a 50‐year low, and even under a Republican administration, the deficit could not go lower than 5% of [gross domestic product ("GDP")].

And then, post-COVID, we had a booming economy where tax revenues were augmented by high inflation, nominal growth of over 10%, a windfall of taxes from capital gains due to the tech boom [$600 billion above average], all with 3.5% unemployment. You may reasonably ask, how much bigger was the surplus relative to that during the tech boom in the late '90s? Incredibly... we ran a deficit of over $1 trillion.

Never in history has a booming economy produced a worse fiscal result. Never. Expect this trend to continue absent radical policy changes.

The arithmetic for your "entitlements" just doesn't work.

Based on Druckenmiller's analysis, keeping the current size of entitlements would require federal taxes to total 7.7% of U.S. GDP. That's the equivalent of a 40% increase in taxes versus a decade ago... or a permanent 35% cut in federal spending...

These are dreadful alternatives and still they are probably being underestimated. Faced by this magnitude of tax increases, investment would inevitably falter and growth would suffer considerably, making it almost impossible to maintain the size of our current safety nets.

In other words, either alternative would have dramatic consequences on the U.S. economy. And yet... so will the status quo.

There's no video of the talk, but there is an audio recording available for free here and a somewhat different transcript here with charts. I think you'll find that securing your own financial future, and not relying on the government for anything, never sounded more important.

Finally, don't forget Joel Litman's talk, either…

In less than two hours, Joel Litman – founder of our corporate affiliate Altimetry – is going on camera to share details on the next crisis he has been preparing for.

It's not one of the ones we discussed today... or anything you're likely expecting. It has nothing to do with the debt ceiling, inflation, or the recent bank crisis – at least not directly.

But it's big. What Joel plans to talk about will be 20 times larger than the Silicon Valley Bank collapse... and the effects could send some stock prices soaring and others crashing by as much as 90% in just a few weeks.

He'll explain all the details tonight in an entirely free event.

For those who might not be familiar with Joel, he's a world-renowned finance professor and accountant who has made several popular appearances at our annual Stansberry Research conferences.

Over the years, Joel has developed a form of "forensic analysis" that neither Wall Street firms nor the U.S. government have been able to duplicate. Often, they call on Joel to expose what they can't see... The FBI once hired him to develop a way to see which CEOs mean what they say during their earnings calls... and which ones are lying.

In short, it's worth listening to what he has to say...

Like Druckenmiller's recent comments to college students at USC, Joel delivers the truth. And as we said on Monday, the truth always wins, eventually.

At 8 p.m. Eastern time tonight, Joel will reveal the details of the next crisis he has been preparing for, explain why Wall Street banks and hedge funds have been doing the same, show why it's not too late for you to prepare for this major market event, and outline how he suggests doing it.

This is a new battle plan that he hasn't shared anywhere else. And following one simple strategy could potentially double your money, every three months... while helping you avoid big losses. He's also going to talk about why Wall Street doesn't want you to know what's coming.

Again, Joel's event is free to attend... and I'm certain you'll learn something.

Just for registering to watch, you'll get special access to Joel's "Wall Street Truth Detector." And if you tune in, you'll also hear a free buy recommendation and the ticker symbol of one stock to sell immediately if you own it.

We also learned today that within the first five minutes of Joel's presentation, viewers will get the exact date that this Wall Street event will send shock waves through more than $10 trillion of assets and half the U.S. stock market. And it's within the next 45 days...

So, sign up for this free event right now to make sure you don't miss anything.

New 52-week highs (as of 5/9/23): AutoZone (AZO), Copart (CPRT), Salesforce (CRM), Enstar (ESGR), iShares MSCI Mexico Fund (EWW), Franco-Nevada (FNV), iShares U.S. Home Construction Fund (ITB), O'Reilly Automotive (ORLY), Revance Therapeutics (RVNC), Seabridge Gold (SA), Torex Gold Resources (TORXF), and Verisk Analytics (VRSK).

In today's mailbag, some more feedback on Monday's Digest, which included a report on comments from a relatively new Federal Reserve official... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"A brief comment about Austan Goolsbee. Professor Goolsbee is a product of academia (University of Chicago School of Economics.) He is a liberal and acts accordingly. His appointment as President of the Federal Reserve Bank of Chicago is, to state the obvious, 100% political. Expect nothing but another 'yes' vote on whatever course of action Chairman Powell decides to follow." – Paid-up subscriber Frank S.

All the best,

Corey McLaughlin
Baltimore, Maryland
May 10, 2023