(Bloomberg) -- The markets are in a “raging mania” and rising inflation is a big threat, investor Stan Druckenmiller said.
Inflation could hit 5% to 10% in the next four to five years, Druckenmiller said Wednesday in a CNBC interview, adding that the Federal Reserve has created conditions that have sent valuations soaring. Deflation is also a risk, he said.
“Everyone loves a party but inevitably after a big party there is a hangover,” he said. “We are in a raging mania.”
Investors, however, in general don’t see much risk of higher inflation in the U.S., according to prices in the market for Treasury inflation-protected securities. The 10-year breakeven inflation rate derived from TIPS is just 1.7%, suggesting the risk that the Fed will miss its 2% inflation target over the next decade is higher than that of exceeding it.
Periods of deflation have been preceded by asset bubbles, Druckenmiller said, and Fed Chair Jerome Powell “has created this massive asset bubble, so ironically he’s raised two tails” -- the risk of inflation and the risk of deflation.
Druckenmiller said the odds of hitting the 2% target “have actually gone way down with the Fed activity.”
U.S. stocks sold off in the last three trading days, with a drop in technology shares gathering speed as investors fled the names that fueled a historic five-month rally. Heading into Wednesday’s trading, the Nasdaq 100 Index was down 11% from its record high set last week. Traders have sought safety in haven assets, pushing Treasury yields lower and strengthening the dollar.
In June, Druckenmiller said he was “far too cautious” during this year’s equity rally because he thought government stimulus programs wouldn’t be enough to overcome the Covid-19 pandemic’s economic fallout.
A former chief strategist for billionaire philanthropist George Soros, Druckenmiller converted his hedge fund into Duquesne Family Office in 2010. He has an estimated net worth of $5.8 billion, according to the Bloomberg Billionaires Index.
How the Fed Is Bringing an Inflation Debate to a Boil: QuickTake
Druckenmiller, 67, was on CNBC to talk about the Harlem Children’s Zone, a nonprofit that aims to end generational poverty in New York City’s Central Harlem neighborhood. The organization is celebrating its 20-year anniversary this evening.
(Adds inflation risk in fourth paragraph, Druckenmiller on deflation in fifth paragraph.)
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