|MACRO Theme||ETF Instruments|
|Inflation (Sell Bonds) –>||Short TLT or Long TBF|
|Inflation (Buy Commodities) –>||Long DBC or GSG|
|Technology (Blue Chips vs. High Flyers) –>||Long XLK/Short ARKW|
|Asia Leads the World in Growth –>||Long VPL|
Stanley Druckenmiller is considered to be one of the greatest investors of all time. In a career that has spanned decades and even centuries ( he started managing money in the 1970’s) and traded through a variety of financial crises from the Black Monday crash of 1987 to the LTCM blow up in 1997 to the popping of the Internet bubble in 2000’s and the Global Financial Crisis of 2008 without ever recording a losing, although he would be the first to admit that part of that remarkable record is due to the luck of the calendar.
Nevertheless, Druckenmiller possesses one of the most creative and original minds in finance so it’s worth a look to see what he is trading now keeping in mind that part of his long term success is the ability to change his mind on a dime.
In a wide ranging interview with Tony Pasquariello of Goldman Sachs Druckenmiller revealed his best ideas for 2021 showing how he is positioned at the moment.
Druckemiller’s central thesis is that the massive fiscal expansion in the budget deficit along with the ultra accommodative policy of the Fed will create inflationary pressures throughout the global economy and his largest macro bet is to be short US bonds at the long end of the curve and long a basket of commodities. Investors who have the ability to trade on margin can easily implement this trade by shorting the TLT ETF which tracks US Treasuries at 20+ year maturity and by getting long either the DBC or the GSG ETFs both of which track a broad basket of commodity prices and are up double digits this year. Investors who cannot trade on margin could consider the TBF EFT which is simply a 1X leveraged inverse long bond ETF that tries to mirror a short position in 20+ year Treasury maturities. If the bonds yield on the 10 year move to the 2.00% – 3.00% range within a year, that position will explode to the upside.
When it comes to equities Drukenmiller proposes two relative strength bets. In the US equity market he believes that higher yields will be toxic to the high flying 40X revenue technology stocks and will be much less problematic for technology blue chips such as AAPL, MSFT, FB and AMZN so one possible way to play the theme is to be long the high technology XLF ETF while being short ARKW (ARK Next Generation Internet ETF) which holds many of the high flyers.
Finally, Druckenmiller is very bullish Asia versus North America and Europe and is heavily invested across all major Asian equities bourses and currencies. His thesis is that Asia has been able to weather the COVID pandemic far better than Europe or US. The balance sheets of the region of both public and the private sectors are far better than those of the US and the rebound in growth will be stronger as well. Druckenmiller is long all the major stock markets in the region including Korea, China, Taiwan and Hong Kong but retail investors the easiest way to invest in the region is to simply buy the VPL ETF which tracks the broad index of stock in the region and is up strongly this year.
Druckenmiller is a strong proponent of making concentrated bets and then watching the investment carefully. So far this year his sense of market direction has been spot on and his primary view that Treasury yields will rise materially over the next year could pay off big if the macro forces align with his forecast