Stanley Druckenmiller, Duquesne Capital Management former chairman, and Jimmy Dunne, Sandler O’Neill, weigh in on how the Fed’s policy will likely impact the market. “The big money was betting that they were going to taper,” Druckenmiller said, and the Fed missed a “freebie,” he added. Here is a direct video link.
The first 7 minutes of this clip are nonsense filler, the last 10 minutes are worth hearing so you can advance the play bar to start the clip at 7 minutes for expedience.
I agree with much of what Druckenmiller says: while he thinks QE efforts since 2010 have been a mistake and that the Fed made another mistake in not tapering QE yesterday, he thinks this will keep the market rally going for a while longer which he says is good for stock owners. But he also points out that at some point corporate earnings (or some other shock) will disappoint and markets on dope are likely to suddenly plunge on no volume. He also believes that when that re-pricing completes all of the wealth effect from QE will prove to have been illusionary “wasted money” because “from beginning to exit the wealth effect from QE will have been negative, not positive”. So while he says market practitioners and “rich people” are happy to ride prices up, on the other hand he admits those gains are not justified and will suddenly be taken back and then some at a moment’s notice.
So the question from all of this is how long should individuals chose to stand on the top floor of a burning building, knowing there are power kegs in the basement? That is the question everyone must answer for themselves. But I would submit, professional money managers who say they have no choice but to be reckless along with Fed, are likely to find themselves on the defending end of law suits once the capital losses hit. Of course at that point, their usual defence argument will be copied and pasted from previous bear market law suits along the lines of “markets are unpredictable, no one knew prices would tank, everyone else lost money too”…etc….etc. Duty of care anyone? Anyone?