Charlie Munger & Stanley Druckenmiller on Future Equity Returns
Also: Do markets rally during recessions?
The Incoming Recession Is A 2023 Story | David Rosenberg
But What About the Market Rally?
Despite the onslaught of indicators suggesting we are approaching a recession, the market has rallied significantly year-to-date and the S&P 500 is only 12.5% below it’s all-time high. You’d be justified in thinking the worst is behind us.
I certainly hope it is, but history tells us a different story.
The charts and points (source: ECRI) below shows S&P 500 performance around historical recessions. The red vertical line represents the start of each recession. You can see there were double-digit market rallies during each recession.
Here’s what happened during each recession
The 1973-75 recession:
Stock market rallies in late 1973 and early 1974.
"Money illusion" leads to delayed recognition of recession and delayed job losses.
The 1980 recession:
Stock market rally in early 1980.
Market downturn occurs briefly before recovery.
The 2001 recession:
ECRI declares recession "unavoidable" in March 2001.
Stock market surges 19% in April, believing recession averted by Fed rate cuts.
The 2007-09 recession:
Recession begins in December 2007; equities rally 12% from March to May 2008.
Inflation fears lead to predictions of Fed rate hikes, while real-time data doesn't show GDP contraction until June 2008.
Charlie Munger Believes Golden Age of Investing is Over
Charlie Munger - of Berkshire Hathaway fame - believes that the golden age of investing is over, and the future will present a more challenging landscape for investors. The favorable conditions of the past, which included low interest rates, lower equity valuations, and ample opportunities, have largely come to an end. The historically high returns that Berkshire Hathaway has generated, nearly 20% compounded annual returns since 1965, will be increasingly difficult to achieve.
In the current investment environment, Munger believes investors will have to contend with higher interest rates, a crowded field of investors seeking bargains, and companies with inefficiencies.
Investors will need to adapt to this new reality and adjust their strategies and expectations accordingly.
Stanley Druckenmiller is Betting against the US Dollar and Shares Munger’s View that Equity Returns will be Lackluster over Next Decade
Stanley Druckenmiller, born on June 14, 1953, is an American billionaire investor, hedge fund manager, and philanthropist. Druckenmiller gained prominence as the lead portfolio manager for George Soros's Quantum Fund, where they famously "broke the Bank of England" in 1992, betting against the British pound and earning over $1 billion in profit.
A recent Financial Times article revealed Druckenmiller’s view:
Druckenmiller is betting against the US dollar due to lack of confidence in US policymaking and belief in further currency depreciation.
Concerns about weaponization of the dollar and other countries' skepticism about trading in US dollars.
Unnerved by the Federal Reserve's response to Silicon Valley Bank's failure and rapid expansion of its balance sheet.
Anticipates little positive direction for equities over the next 10 years and avoids "old economy" companies.
Expects a US recession and is in the "hard landing" camp.