Stan Druckenmiller | Podcast | In Good Company | Norges Bank Investment Management

Hi, everybody. I'm Nicolai Tangen, the CEO of the Norwegian Sovereign Wealth Fund. And today, I'm here with Stan Druckenmiller, a proper legend in the investment world. Stan, what a pleasure to be here. Happy to see you, Nicolai. Now, what are the most important data you're looking at these days? Currently? Yeah.

Interestingly enough, I'm known as a macro investor, but I do macro from the bottom up. So we're listening primarily to companies, and we're not seeing any material signs of weakness other than maybe in the housing market, but that's from a very elevated price level. So we're not seeing bottom-up information indicating to us that there's an economic problem anytime in the next three to six months. I would also say—I'm revealing now that I'm more of a market animal than an economist—that we look at financial conditions. They've been very, very loose. I mean, they're as loose or looser than they were when the Fed actually started tightening. They've tightened considerably in the last four or five weeks, ironically, ever since the Fed cut, because the dollar has rallied and obviously interest rates have gone up, but they're still quite above normal.

So that's pretty much the data we're looking at. I'd say the other thing I'm focused on—I've been obsessed with whether we're in the '70s, really since 2021, when this whole inflationary episode started. And I'd say two years ago or a year and a half ago, I was very confident that inflation was gonna come down, which I was right on, but I was worried about the economy, which I was completely wrong on. More recently—and you can take this with a grain of salt since I had one right and one wrong there—I've switched to being more worried about inflation going forward than the economy itself. Why do I say that? If we go back to the '70s, there was an episode with OPEC that set off inflation, you had a recession, and inflation came down, I think from about eight to three.

And then went back up again?

Yes, and what's bothered me and what I have wanted to see—you're exactly right, it went back up again. It went back up again, and the number of months would correlate to the bottom being right about now. So my confidence a year, year and a half ago was we're gonna have that period where we came down again and then we'd see. And I'm a little worried that the Fed has declared victory too early. I don't have conviction like I had in '21 that inflation was going to go up. That's when the money supply was growing 40% and all sorts of things were happening. But I also don't have conviction that they've snuffed this thing out and won the battle. To cut 50 basis points with credit spreads tight, gold at new highs, equities roaring, no sign of weakness, material weakness in the economy...

Of course, there are some spots. That just makes me nervous that this thing could turn up again. What would make it turn up again? What would be the factors? I think what I just said: easing in financial conditions. Let's say Trump wins. If Trump wins, you could have animal spirits from the business community who are dying for deregulation. You could have tariffs, which are, on the margin, inflationary. Immigration has been a great boon to this country—maybe not the way it was done, but it certainly has enabled us to have growth without inflation, and labor materially the last two or three years. So, the combination of animal spirits, recovery doing better than it is... I'm just open-minded to it again.

Why is it so urgent for the central bank to cut given this? Honestly, I don't take the nefarious view that Powell is doing it for quote-unquote political reasons. I do think he's obsessed with, with the soft landing, and I think he's obsessed with his legacy and having made the mistake he made in '21. And he's being egged on by other economists in the press. To me, the Fed's job is to avoid the big, big mistakes, like the '70s, like the Great Financial Crisis, like the big inflation we just had. But all this fine-tuning and worrying about a soft landing, that is not the job of the Fed, in my opinion. It's to maximize employment for the long term, not for the next three months or the next four months.

But I think the Fed's obsession with nailing this so-called soft landing—I would remind everybody that the reason we're having a landing is because they let inflation go from 2% to 9%. So there was no need for a landing for 20 years. But I think that's what they're obsessed with. I don't know. How much of a problem is the forward guidance? It's a huge problem. My friend Jim Grant says they're forward-guidance dependent, not data-dependent. It's a problem because once you do forward guidance, you eliminate your optionality. And I think, Nicolai, you and I being in this business, we know we have to change our mind when we're wrong. This Fed has shown over and over again that they think if they change their mind, they're losing credibility.

So it makes them have their hands tied behind their back. I'm wrong all the time. I think my record is mainly because when I'm wrong, I change my mind. Not that I'm always right. I'm certainly not. Forward guidance seems to tie them into positions where and eliminate flexibility they need. How big a problem is the budget deficit? As a practitioner, it's something I can't be obsessed with on a three- to six-month basis. As an American, it's something I'm really obsessed with because debt-to-GDP can't go up forever. And to me, we have a reckoning, but I don't know how to time when that's going to take place. I will say that because the reserve currency, we've been permitted to engage in behavior that, say, the Brits couldn't have behaved in.

There's a new term I have, getting Liz Trussed. We haven't been Liz Trussed because we are the reserve currency, even though if you look at everything we're doing, it's much more radical than the Brits were doing. What's that old saying, how do you go bankrupt slowly and then suddenly? Running deficits with full employment, basically, it's 7% of GDP, is a recipe that can't last forever. One of the reasons we haven't paid for it is in COVID, the entire private sector, 80% of individuals refinanced their mortgages. So the average mortgage rate is still under 4%, even though at the margin it got to 8%. Corporations termed out their debt. That stuff rolls over in '25 and '26. If we're going to have a problem, it's probably more like late '25, early '26, but you just don't know.

And what is it that can create this kind of Truss moment where people suddenly change their mind in terms of the price they want to have to lend money to the US?

It could be a failed auction. It could be if the Fed is wrong about inflation and it turns back up again because they're easing financial conditions into a melt-up. If they were to have to start increasing interest rates again, which is why I think they should be so cautious about their optionality, now that they've forward-guided to a series of cuts, that could cause it. My best guess would be a failed auction, but honestly, it could be six months. It could be six years. I just don't know. So if rates start to go up, how high can they go? Well, that's a great question because right now, the 10-year, I guess it's around 4.5. It can go to nominal GDP. So let's say inflation went to 4, 4.5, and real growth was 2.5 or 3.

10-year could go to 6 or 7. I'm not predicting that, but that would be consistent if things... If inflation did turn back up again and the economy wasn't weakening, I think you could get there. It's interesting. That's what happened in the '70s. The bond market didn't really respond until we went back up from like 3 to 12, and then it responded in spades. Again, I'm not predicting this, but as a practitioner, I'm very open-minded to it, and I've got it, like, on my radar.

Well, you say you make the most money from Fed mistakes. So is this the way you are positioned now? I'm short bonds.

I'm not like mega short. I actually had good timing for once. I shorted them literally the day the Fed cut. It's been kind of an easy ride since then. I should have been much bigger. Now that they've moved so much, I'm a little worried about, if anything, being too big. But yeah, no, that's the way I'm positioned. If I thought what we are talking about was happening and I don't see a sign of it yet, I'm just open-minded to it, I would be much bigger. I'm like 25% NAV short, 10-year equivalent.

Stan, moving on to the stock market, the leadership is very narrow. It's led by not so many stocks. Just how do you read this narrow leadership?

It's never been great, but the leadership's not as narrow as it was last April. You're starting to get some broadening out. The financials are doing better. It's not great. We've never had a bear market start without the leadership narrowing. And it's narrowing enough that you're starting to get toward a necessary condition being satisfied. But it's early. But it's a yellow light. It's not a red light.

That's how I read it. So how do you think the tech sector will develop? What kind of signs are you seeing there?

The AI boom is going unabated, Nicolai. I think the private sector just sees it as an existential threat to their business if they don't spend money on it. Because if they don't spend money on it, and their competitors do, and their competitors are right, they're going to have a big, big competitive problem. And of course, the hyperscalers—they're all in, and their demand is just continuing. So look, you've got very rich prices in the tech sector. Stuff like Apple selling 25 or 30 times earnings. It's certainly not growing at 25% or 30%. But we don't have that much exposure to the tech sector, and we're not short it. So I'm not really involved.

But you were very early into it. Yeah. How do you spot these early trends? What is it that you look at?

Honestly, I've got young, really good analysts here. Yeah, a lot of people have a lot of young analysts. Who are on top of things, and they started. We noticed about three or four years ago that the kids that go to Stanford and MIT, the engineers were shifting from crypto to AI. That was the first sign. Then my young partners started talking more and more about AI. I asked them how to play it. They mentioned a company called Nvidia, which I thought was a gaming company I hadn't done work on in a long time. I bought a pretty good chunk of it, and then like a month later, ChatGPT happened. It was just total luck. I had no idea of ChatGPT, but the AI drum around here was big enough and the stock was down, I think, from 400 to 150 or something. So that's how I got started in it. Once we invest in something like that, then we really start to dig deeper, and then there was a whole chain of things. We knew it would affect power, we knew it would affect uranium, we just went through the whole chain, and it was a pretty easy trend to spot, not—not unlike, um—

The cloud was, you know, these things come in waves. But AI, the question with AI now that I'm wrestling with, and the reason our exposure is really neither long nor short, is how to play it. Because we started with picks and shovels, which is NVIDIA, and to some extent, Microsoft. But now we're seeing just massive amounts of capital being spent by these modelers. And if AI is for real, and I think it is, they're all going to give you the same answer. So we're going to have four or five companies who have spent massive amounts of capital, but I don't see it as a winner-take-all model. On the other hand, I think there are applications that I haven't even thought of and nobody's thought of that are gonna spring up.

I mean, who would have thought of Uber or Facebook when the internet started? So we're very bullish on AI, but we're not bullish currently on exactly where we're supposed to be and how to play it aggressively. Not unlike the internet in 2000, 2001, you could have believed in the internet, not been exposed and then got your exposure on a more timely basis. Or I could just be wrong, which wouldn't be that unusual. But you were also early into the anti-obesity drug producers. Oh, that was easy. I mean, I don't know what it's like in Norway, but in America, if you go to Disney World or anything, and if you know the American psyche, if you tell an American they got a way to lose weight without doing any work,

And I knew the drug worked early on just because we were exposed to it. And then when I heard, if you get off the drug, you gain the weight back, then I knew it was sort of a razor blade business because people would have to stay on the drug.

Yeah, but you say it's easy. But I mean, hey, it's not like you're the only one who is walking around in Disneyland and looking at these kind of things, right? But you actually act on your intuition.

or the data that's in front of you? I do, but it's not all brilliance. I bought NVIDIA very well, but I sold at 800 or 900 right when the party was really getting going, and I sold my Lilly in the high 700s. Granted, I had a nice profit. Yeah, I look for big trends. I'm not a Buffett guy that holds for 20 years, but I look for two- to four-year stuff, and both fit into that category. And frankly, we're looking now for AI applications that might not have been recognized yet. I think I'm on the board of Memorial Sloan Kettering, have been for almost 30 years, and the applications in cancer are unreal.

And just FYI, Memorial Sloan Kettering is the leading cancer hospital in the world. Yes. And they have a lot of money in the endowment, partly because you are on the board of the investment committee.

Well, they have a lot of money in their endowment. I wouldn't say partly because I'm on the board, but thank you.

Now, when we last met, you mentioned the concept of buy first, analyze later. Tell me about that.

Yeah. Soros used to call it invest and then investigate. I think I just gave a classic example. I didn't know that much about NVIDIA. I just knew that AI—and I had some people here tell me how to play it. So we bought NVIDIA, and then we, we were in the process of doing a lot more work, and then ChatGPT happened. But I've always had the view that markets are smart, they're fast, and they're getting much more so with all the communication and the technology we have today. And that if I hear a concept and I like it, if I wait and spend two or three months analyzing it, I may miss a big part of the move and then psychologically be paralyzed. It's hard to buy a stock you're looking at at 100. It's 160, even if it's going to 400, somehow your head is screwed up and you're waiting for the pullback.

So we will buy something, a meaningful position, but not earth-shaking, and then really do the work. And if I think we made a mistake, I'll sell it. And if I don't think we made a mistake, we'll add to it if we have to.

I happen to have worked exactly the same way in my life. It really focuses your work and your efforts and your thinking. But have you always believed in your own pattern recognition?

Yes. When I started in the business, I got promoted too early. So before I had really learned the nuts and bolts of the analysis to the extent that I should have, I was promoted to a leadership position and I had to rely a lot on charts and I had to rely a lot on intuition. But I found it's not that hard. If you're dealing with a cyclical company, and they're losing money or they're not profitable and everybody in their industry is shutting capacity down, it doesn't take a rocket scientist to try and envision 18 to 24 months out. If nobody's adding capacity, they may not be losing money anymore. They might be making a lot of money. I have found it's very important never to invest in the present.

Always try and envision the situation as you see it in 18 to 24 months, and then see if you feel things would be different than they are now. Would security prices reflect that? I think that's probably the biggest mistake investors

make is they invest in the present rather than forward-looking and looking where the puck's going instead of where the puck is. Yeah. Now, a few people believe in other people's gut feel. Did Soros believe in your gut feel, or did you have to show him analysis?

Soros and I had a rocky start. I went there. I had some significant success running public funds at Dreyfus. And he told me I was his successor, but I don't really think his mind was completely made up when I got there. And the first six months were quite rocky because it wasn't clear who was in charge. Frankly, we were both trading badly. And I was flying to Pittsburgh because I still had Duquesne. I was running both. When I got off the airplane—I think we had pay phones back then, we didn't have cell phones—and the head trader there told me he had sold out my bond position. So I probably had a higher opinion of myself at the time than I should have. I was young, and I had always been in charge.

So I was quite upset. And basically, he expressed extreme displeasure, and he said, "We'll talk about it when you come back to New York," implied that I wanted to quit. And he said that maybe there were too many cooks in the kitchen and he was going to Eastern Europe for four or five years, he'd be out of touch, and then he'd find out whether he had been in my hair or if I really was incompetent. That's sort of the way he talks, the way we think, except he actually says it. And luckily for me, while he was gone, the Berlin Wall came down. I invested in the Deutschmark. But I think it was lucky for both of us. I went on like the best run I've had before or since for like four years. So he kept seeing the results.

So I think he trusted my intuition only because the record started that way. "Do you trust the intuition of your colleagues now?" I trust their analysis. They're so much deeper and better at analysis than I was. But I can see the intuition developing. I'm probably as bullish on the talent, the equity talent in my firm as I've been in 45 years. So I guess that's an answer of yes, but partly brain, partly analytics, and then partly intuition. They're not as intuitive as I am, because they don't have to be. I was sort of forced to be intuitive because I never acquired their analytical skills.

You mentioned some examples of where you had sold a bit early. Do you generally sell early?

No. I mean, embarrassingly, I did an interview on Nvidia. I think it was like 370 or something. And I said, "This is one we're probably going to own for a few years." But I didn't think it was going to go to 900 in a year and to over a $2 trillion market cap. I think it started like 100 billion or 150 billion. It was something crazy. So no, I don't necessarily sell early. I'm a technician, so I usually wait for tops. Nvidia had no top. I just thought— What does that mean? Just want to explain, what does it mean to have a top? A top is something, the rate of change of it going up changes, and it tends to flatten out for quite some time. The trick is, in the technical world, that can end up being a bull flag, where it just consolidated for a bit and then it did a new leg,

or it could be a top where that was it. And how do you know which is which? You don't. You have an opinion, and you express it, and sometimes you're right, and sometimes you're wrong. With Nvidia, there was no top, but I just—I've analyzed the semiconductors industry, not particularly well, but since the 1970s, and it's a cyclical industry. And I knew Nvidia had staying power, and they had 4,000 software engineers, so it wasn't just hardware. They have CUDA, this thing called CUDA software that they do to make their GPUs. But I just thought, once it went through 2 trillion, this is just too much, and worst case, it'll have a big correction, I'll get another chance. And of course, I didn't get another chance. Oh, you may. Yes, I may. You think you will? Ah, I don't know. From this price, I assume I will, or I would have bought it back. I don't mind buying something back higher than I would—I don't like it, but I'm perfectly willing to buy something back higher than I sold it. Some people can't get themselves to do it. Oh, I can. I'm—

The one thing I'm strong on is I'm not emotional. You never had a down year? No. Stupid question. Why is that important? No good reason. I think it's important because other people talk about it. And my investors loved it when I had investors because they have this stuff in our industry called risk-weighted return. I'm not big on that. But I will say it's a stressful job. And there's less stress if you don't have big drawdowns. I have had significant drawdowns in a year. So part of the down year is just luck. So what does a drawdown do to you? I get anxious, upset.

You still get upset, even though it's only your money?

Yes. Yeah, I'm a very competitive person, even if it's just my own money. I wish I wasn't, but I am. Probably one of the reasons my results are as good as they are, but I prefer myself not to be. It's a bit of a sickness, but it works for me.

Who do you compete against?

I compete against what I would call the opportunity set. And if there was a great opportunity set that year and I missed it, I'm disappointed in myself. Like if I'm up 20 and I think I should have been up 50, I'm disappointed in myself. If the opportunity set was basically to be up 10 or 15 and I'm up 20, I'm thrilled.

I mean, the good thing about being an investor is always a good reason to hit yourself in the head, right?

I don't know if that's a good thing about our business, but it's probably the bad thing about our business. And for some reason, I like to hit myself in the head. I always measure from the top.

But you are quick at selling your losers. What's the key to that?

If the reason I bought a stock is no longer the case, I don't care what I paid for it. And if I bought it at 60 and it's 50 because the market's discovered the problem before me, I have no emotion whatsoever. Soros was the same way. I didn't really learn it from him, but it was certainly reinforced. After a while, Nicolai, you also develop enough confidence that you're not afraid to clean the slate and start over because you have the confidence that you'll be successful again and you're not going to sit there in a lazy position that you're not that sure about anymore. Just clean house, and if you've been doing it for decades and it's worked, you kind of have the confidence to take a loss and not worry about it too much.

Once I'm out, I'm out. You said you don't have feelings. What do you mean by that? Did I say I don't have feelings? I have a lot of feelings. You mean about taking losses? Yeah. What I mean by that is, I think one of the reasons charts work, the reason there's support and there's—there's resistance. The resistance is a bunch of people that bought it at 60 and then went down, and they've been waiting for three or four years for it to get back to 60 while they could have been in something else that was going up the whole time. I just don't care what I paid for a stock. It's absolutely irrelevant in terms of my investment process going forward.

Now, this combination of being, on the one hand, stubborn, but on the other hand, being able to change your mind—it's pretty rare. I'm told it is.

I'm told by my friends and other investors that I'm entirely unemotional. And yes, I am told it's rare. Is that the key to your success, you think? One of them. I think it's a big part of it. I think, again, being open-minded and having humility—the only reason you can change your mind is if you're not arrogant about a position—has mattered. I think I had some great mentors: the one in Pittsburgh, and then Soros in terms of sizing. And I think I learned some lessons very early on. Concentration—not to be afraid of concentration—that's a big reason for my success. And probably the other big reason was sort of self-taught, is being willing to go into other asset categories. And if you're going to concentrate, it's better to have five buckets to play in than to play in one.

So I was brought up in the equity market, but sometimes the risk-reward in the equity market is not that clear when it actually is clear in the bond market or the currency markets. And it's a coincidence—you asked about never having a down year—part of it is the most action in bonds and currencies tends to happen in bear markets in equity markets. So you can put the equities in the drawer for a while and just concentrate in those markets. I think that's been a huge part of my success is it gives you the discipline not to play in areas that you don't have a lot of conviction in, because if you've got credit to play in, if you've got commodities to play in, currencies or bonds, you can usually find something that you think there's a great risk-reward in.

It's also they tend to be more liquid than equity markets. So to our earlier conversation, you can change your mind when you're wrong. What did you learn about sizing from Soros? I don't know whether you know about—do you know baseball at all, or would your listeners know about baseball? When I went to Soros, I thought I would learn what would make the Deutsche Mark go up and the yen go up. And modestly, I found I was better at that than him. In baseball terms, I had a very high batting average. He had a much higher slugging percentage. So what I learned from Soros is when you have conviction, you should bet really big. I know your listeners have probably heard it before, but probably the best illustration is the pound.

Yeah. So what happened? So let's go back. So you're in the office. What's happening in the UK?

So I'm in the office in New York and Scott Bessent, who is a partner of mine in Europe, mainly trade the European area, he's in London. And he tells me the London housing market is in big trouble and the British economy is in trouble because, like most Anglo-Saxon economies at the time, it's very much driven by housing and so forth. Just paint it out a bit.

So your office, are you like overlooking Central Park?

I'm not overlooking Central Park, but I'm near it. I'm in the Soros office on the 32nd floor, but it's not a corner office. It's nothing fancy. And the UK economy is going down the toilet. We think the UK economy is going down, but I need to take you back about three years. When the Berlin Wall comes down, it probably saved me my job because I probably would have been fired at Soros six months after he went to Eastern Europe had the Berlin Wall not come down. But the Deutsche Mark went down for two days dramatically because the theory in the market was the Ostmark, which was the East German currency, was going to pollute the Deutschmark. I knew German history and knew they were obsessed with inflation because the Weimar Republic and then that led to Hitler and so forth and so on.

So I knew the Germans were absolutely obsessed with inflation. I knew that bringing all these East Germans into the labor supply was going to cause a boom in the economy, so we were very bullish on the overall German economy, and we were very convinced that there is no way the Bundesbank would let inflation—so we were very convinced it would be accompanied by tight monetary policy. So we had shorted the Italian lira successfully, um, during that period. So when the—when Scott called me, we were already sort of on this Deutschmark journey we'd been on for a few years. And the British economy is going down, and the currencies are linked. So it was a peg, right? It was a peg. So I called and asked how much it would cost me

to short the pound versus the Deutsche Mark for six months. It was a half a percent. I think the fund was around seven and a half billion at the time, Quantum Fund. And I decided to do an invest-and-then-investigate position. So I did a billion and a half or like 20, 25% of the fund short the pound, long the Deutsche Mark, figuring I'd probably lose a half percent because of the peg and it won't break within six months, but I wanted the position on. Fast forward probably about five or six weeks, the day I believe was September 15th, not that I would remember, I read the Financial Times and the head of the Bundesbank—now I'm showing my age, but I'm pretty sure it was Tietmeyer—has written an editorial in the Financial Times, basically in more proper language, but he's basically saying that the Deutsche Mark and the pound should no longer be linked.

So I decide to take Duquesne and the Quantum Fund to 100% along the Deutsche Mark. short the pound, because it's still a half a percent, unbelievably. Now you're going to hear vintage Soros. So he happens to be in New York at the time, which he wasn't always. I go into his office and I explain to him why I'm going to 100%. And he had a rather large personal account. That's how we kept each other out of each other's hair. He traded that and it was 90, 95% overlap. Told him why I was doing this. And he had this unpleasant, puzzled look on his face when I'm telling him my thesis, that this one economy is booming and they need higher rates. This other economy is falling apart. They need lower rates.

These two currencies shouldn't be linked. And I'm thinking, what does he not understand about this? Because this guy pretty much understood everything. And he says, "Look, this is a one-way bet. They come along very, very rarely. It's ridiculous doing 100%. We should put 200% of the fund in this trade." So there you have it.

So that means that you borrow money from the bank and double up.

Yeah, on a $7.5 billion fund, he thought we should have $15 billion short the pound, long the Deutsche Mark. It turns out we never got there. But it shows the way the man thinks. I saw it over and over again. Because once you were trading, the thing happened. Yeah. Unfortunately, we had a pretty strong reputation. And when I started selling it that night, I noticed a lot of other hedge funds started selling at the gossip community and the currency markets. Midnight to 1 o'clock, the forwards had blown out. They'd started the day at 0.5%. They were like 6% or 7%. And it basically wasn't trading after 1 in the morning. Then the British raised rates, I think, from 6 to 9 to try and stop the bleeding.

And then they went to 12. I knew it was over. But the forwards were out so much, it didn't matter. And it was... It was done by noon the next day.

And you were sitting at your desk looking at the Reuters screen? Yes, or whatever the screen at the time was.

We only got 7.5 billion done, ironically. Had it not been for Soros, I probably would have not got to the 7.5, because intending to do 15, I was in a bigger hurry. So what did you feel when it broke? There was a lot of adrenaline. It was exciting. I didn't feel bad because I thought the British economy needed it. I was gratified years later when they changed it from Black Wednesday to White Wednesday. Then I went into action after it broke because the gilts were down two points, which I thought was ridiculous. British needed lower rates. There's some theory in academia that if you have a weak currency, your interest rates have to go up. So I bought gilts, I bought British stocks. There was a whole— Because what happened was that the currency depreciated and it was good for exports, right?

So the stocks went up afterwards. Yeah, the stocks went up, the gilts went up because they needed lower rates and they'd been held artificially high. So there was all kinds of other stuff I did around it, which is kind of the way I trade. You get a theme, and then you look at the concentric circles or the—or the dominoes that fall because of a theme. And—but the point was with Soros, if he really believes something, the position could never be big enough, yeah, particularly if it's in a liquid market. And I learned from him. I like to play the turn, maybe my ego, in a big turn in something. He was perfectly happy to play from the third to the sixth inning, if we go back to baseball terms, if it's a nine-inning game.

He was perfectly happy to play the third to sixth inning when there was more certainty on much greater leverage. He had more courage than I did in terms of sizing positions. I don't think it totally rubbed off on me, but it certainly helped. And it was a huge learning experience. I think the major thing I learned with him is it's not whether you're right or wrong. It's how much you make when you're right and how much you lose when you're wrong. And that's what he was probably as good as anybody who's ever been at.

Stan, many people have heard about the pound, but not many people know that you also did the Swedish krona.

Yes. My memory's a little less clear on that one as to the reasoning, but it was just another victim of the Deutsche Mark. I assume there was some kind of divergence between the two economies and there was a peg that I thought was inappropriate and it turned out that worked out too.

So you took that peg too, but you took another peg too. What's that?

Because I thought you were also involved with the Thai baht. Yeah, the Thai baht was easy. But nobody knows about this, right? No, I think Sebastian Mallaby wrote a book called More Money Than God. There's a whole chapter on the Thai baht. But not on the Swedish kronor? No, the Swedish kronor, no. I prefer nobody knew any of this stuff. Well, we need to get it right for the history books. I'm happy to talk about it 25 years later. Any trades you regret not making? Oh, there's... There's trades I regret not making constantly. I'd say one of the biggest mistakes I made was having predicted the inflation really early and feeling so strongly about it. I wrote a piece in The Wall Street Journal with my partner, Christian Broda, in the spring of '21.

I had a massive short for me in two-years, sort of like we just talked about with the pound. It was a one-way bet. They were 15 basis points. And I was so mesmerized by where they'd been, I took most of them off at like 150 basis points. It seemed like a great win from 15 basis points to 150. But as you know, they went to 500. I regret deeply not holding that position. There's probably 30 others, but I prefer to forget my mistakes.

Do you think machines can take the place of humans when it comes to investing?

No, I don't, but I think they can work as a co-pilot and the combination can beat anything a mere human could do. I'm lucky enough to have known Garry Kasparov for a long time, co-founder of the Kasparov Chess Foundation. For no good reason, I can hardly play chess. My nine-year-old daughter was beating me. That's how I started with Garry. But he was probably one of the first guys to use machines to train himself and work with them. I could see the same thing happening with money management. So I don't think the pure machines... They'll make money because they have a disciplined process and there's math. But I think if you could find an intuitive investor who's using AI and other things to supplement, I think that would probably be the top investor in the world, not a machine.

Now, you took a sabbatical in 2000. Yeah. What was the reason behind that?

It's a painful but really fun story. It really starts in 1998. Well, no, it starts in the spring of 1999. I shorted, I think it was 11 or 12 internet stocks, not the leaders like AOL or Yahoo, but the also-rans. And I believe the position was like $200 million. And in like four weeks, I had lost like $600 million. So it was the first time I'd ever had a big drawdown. I was down like 16% or 7% in the spring of 99. I then pivoted and realized that Greenspan easing because of the Asian financial crisis, while our economy was strong and we had the internet and all this behind it, I went out and hired a couple of young managers to buy tech stocks that I didn't know how to spell. They had their own little accounts and I would plow in on top of their positions.

And we ended up the year, I think something like 42% net or something after being in this deep hole because I rode this crazy NASDAQ wave in '99. In January, I just said, 'This is ridiculous.' And I sold out all my tech holdings. Like, I can't remember. It was like they had grown to like $6 billion. It was enormous for that period of time. And I actually went and told Soros why I had sold them out. And next thing that happens, the two little satellites inside, they don't sell out. They're gamblers. I don't really care because Quantum's huge and they're this little thing. They're not going to affect the performance that much. But Nicolai, they're making like 4% to 5% a day. I mean, the market is still roaring going into March.

And I'm watching this and I'm getting really annoyed with myself that I'm not still in this trade. And then around early March, I can't take it anymore. And I told you earlier, I'm not emotional. This was a real emotional, really dumb move. I buy everything back. I think I missed the top by about an hour. So I buy back all these tech stocks. And within a week, I know I'm dead and Quantum goes from like up 14% to up 1% in a week. And I go in and I, now I've already been through the trauma of the spring before. I recovered from it, but it had a big effect on me, the stress. I had young kids, you know, and it's like a repeat of the year before. So I go into Soros and I tell them two things. A: I'm getting out of all this stuff.

B: I'm quitting. We can't tell anybody because I got to liquidate this portfolio. But the NASDAQ is in the beginning wave of a down 90% move and you can't get out. So by the time I get out, it takes a few weeks. The fund is down like 17% and Duquesne is down 17%. And I'm just exhausted. I've been running this high profile fund for 12 years. So I sell everything out, everything of Duquesne, send my investors a letter and say, I'm going on a sabbatical. I don't know whether I'm coming back or not. You can take all your money out, but if you take your money out, if I decide to come back, I can't guarantee I'll let you back in. I think I had like 200 clients. One of them pulled their money. I remember who it was, but they'll remain anonymous for now.

I shut everything down. I go to Africa with my wife and kids. And the best thing I did is during the summer, I refused to expose myself in any way to something that would tell me where the markets were. So I'm not allowed to watch TV. I'm not allowed to see the Wall Street Journal prices, nothing. So I come back on Labor Day. I think my wife couldn't have handled me being around once the kids go back to school. Sort of humor, maybe not. So I come back and it's remarkable because the S&P has rallied back almost to the high. The Nasdaq retraced about 85% of the decline, but the dollar is up, interest rates are up, and oil is up. Three death knells for markets if you look at history. So I then start calling all my clients who are basically small businessmen, they're not fancy institutions, and all their businesses

are terrible. So then I call Ed Hyman, and I say— He's an equity strategist, macroeconomist. Yeah, he probably was the number one institutional guy, whatever that rating is, Institutional Investor economist. And I say, 'This is very odd, Ed. I've been out of touch, dollar's up, blah, blah, blah, blah.' And two days later in his daily missive, he has regression analysis. And it says it's 50%, I think, currency, 25% oil and 25% interest rates. And it looks one year forward. And it predicts earnings. And it's predicting that earnings are going to decline 36% the next year. And the Wall Street consensus is they're going to go up 18%. So combination of that, listening to my clients, the fact that Greenspan's got a tightening directive on, which I think is inappropriate, I start buying all these Treasuries.

And the market doesn't go my way, but all the information keeps coming. So I keep buying more and more and more and more. So now I have a 350% 10-year equivalent in the fund. And then I get lucky with the Gore-Bush fiasco. Economy falls apart. I end up making 40% in the fourth quarter. So I had written a year off. When I came back, I'm down 18. I assume, okay, at least I don't have to worry about this anymore. I'm finally going to have a down year. And it's like the best quarter I ever had. And to this day, if I had stayed managing money, I think I'd have been tied in knots and there's no way I would make that trade. It was the fact that I was away for four months, had a clean slate, had a clear head, and just looked at the new evidence.

So... It was a very, very horrible beginning and a very lucky ending.

Now, you don't take four months off very often. You work very hard. When do you wake up in the morning? Four. Four in the morning?

Yeah.

What do you do? You have an office at home, right?

Yeah, I immediately go to Bloomberg. 4 o'clock, do you make a cup of coffee before you go to Bloomberg or straight to Bloomberg? Yes. I make a cup of coffee. I go up. I don't shower yet. Check all the markets. Read the journal. Skim the Financial Times. Skim the New York Times. Check all the emails overnight. When I say check, I mean skim them for the important ones. Then it's probably 5.15 or 5.30, take a shower, go to work, start all over again. When do you go to bed? Usually around 8.30, quarter to nine, as soon as I see Japan, what's happening.

You basically live according to financial markets.

Yes. My mother-in-law said a long time ago I'm an idiot savant. She thought she was joking, but she's correct. It's the only thing I'm really good at. I really enjoy it. It keeps me young. I'm dealing with brilliant young people here as analysts, but also I'm forced to read the newspaper and forced to learn about these waves, and, uh, keeps me stimulated. I love it. Well, you are 71, right? Yes. And you will continue until you—until you die, you think? Yes, hopefully it won't be tonight. No, I think probably not.

I do- Stan, last thing, we've got 10,000s of young people here. Now they want to be like you, make a lot of money, be successful in financial markets. What should they be doing? How should they enter? What should they think about?

First of all, if they're going in it for the money, they should go elsewhere. There's too many people in the business like me that just love the game and the passion for reasons I just articulated. And they're not gonna be able to outwork the people that are passionate in the game. And it's not a fun game if you're losing. It's horrible, I just told you, and how I respond to drawdowns. So, but if they have a passion for it, if I was a young person, I would not get an MBA. I'd go find a mentor, and if they didn't want me, I would just relentlessly bug the hell out of them, which a couple of have done with me, until they finally accepted me to go and work for them, learn what I could from them. If they still like the business, just keep trying to grow your knowledge base.

I would say an analyst skill set in our business is completely different than a portfolio manager skill set. Once in a while, you'll get an overlap. But I would be careful if they really loved the analyst part, which is where we all start, of thinking they have to become a portfolio manager. I've seen it ruin people's lives who weren't built for trigger-pulling, so they should be open-minded. I got in the business because I wanted intellectual stimulation, and you're going to get plenty in either one. But that would be my advice to them, and be open-minded.

Stan, this has been an epic conversation.