It’s no secret that a lot of hedge fund managers on Wall Street have no love for Ben Bernanke or his monetary policy. Journalists, economists and pundits have mused on the reason why more times that anyone can count.
For their part, hedge fund managers usually say that they fear Bernanke’s policies will lead to rampant inflation — a massive problem in the United States in the 1970s when many of them were coming of age.
That danger, however, remains to be seen in our economy as, in fact, deflation continues to be a risk.
So why do hedge fund managers hate Ben Bernanke? In an interview with Goldman Sachs, Stan Druckenmiller, a known Bernanke detractor gave a candid explanation we never though we’d hear from a hedge fund manager.
He was answering a question about whether or not investing had become more difficult in recent years (via ZeroHedge):
It has become harder for me, because the importance of my skills is receding. Part of my advantage, is that my strength is economic forecasting, but that only works in free markets, when markets are smarter than people. That’s how I started. I watched the stock market, how equities reacted to change in levels of economic activity and I could understand how price signals worked and how to forecast them. Today, all these price signals are compromised and I’m seriously questioning whether I have any competitive advantage left.
10 years ago, if the stock market had done what it has just done now, I could practically guarantee you that growth was going to accelerate. Now, it’s a possibility, but I would rather say that the market is rigged and people are chasing these assets, without growth necessarily backing confidence. It’s not predicting anything the way it used to and that really makes me reconsider my ability to generate superior returns. If the most important price in the most important economy in the world is being rigged, and everything else is priced off it, what am I supposed to read into other price movements?
In short, Stan Druckenmiller is now in a world he doesn’t recognise, and it’s making him feel useless.
Earlier in the interview he acknowledged that he “understood the need for QE1 because the US economy faced a potential meltdown.” That implies that the precarious, low-growth situation we’re in now isn’t a good enough of a reason (in Druckenmiller’s eyes) to continue a policy that makes him and many of his peers feel like aliens in their own home.
It is, however, good enough for Japan. Druckenmiller has called Abenomics “appropriate.”
The problem with that is simple — it goes against all the “best advice” and the “golden rules” and the maxims traders have passed down about the market for years.
You’ve heard them all: “Adapt or die.” “Have an unquenchable thirst for knowledge.” “Don’t trade on emotions or ideology.”
Those aren’t all direct quotes, but you get the picture. Hedge fund managers aren’t supposed to be upset about market factors they can’t control, even if those factors are controlled by a person. They’re supposed to see understand the market that exists and come up with the appropriate strategy.
Wall Street is not a ‘shoulda, coulda, woulda,’ kind of place.
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