The famous macro hedge fund manager Stanley Druckenmiller responded to questions during an interview with CNBC on the first day of Trump's presidency (January 20, 2025) regarding the current market, tariffs, inflation, AI, shorting Treasury bonds, and his former colleague Scott serving as Secretary of the Treasury.

Druckenmiller is known as the "greatest money-making machine in history," so when this master speaks, traders in markets around the world listen attentively.

Recall that in mid-October of last year when he was asked about the election, he said:

I still do not have a clear determination on who will win the election. However, I like to predict the tightening of economic and financial conditions through market indicators and also like to predict elections through the market.

In the past 12 days, the market has become quite certain that Trump will win. You can see this from Bank Stocks, Cryptos, and even his social media company DJT...

This latest interview lasted only 15 minutes, but the pace was fast and the content was rich.

• Question 1: From the perspective of the market and the economy, how do you view the situation now?

Druckenmiller: The current economy is very interesting. The unemployment rate is very low, basically around 4%, while the GDP growth rate is 3%.

This marks the 49th year of my professional career. It can be said that the US government has shifted from the most anti-business tone to a completely opposite direction. We have also communicated with many entrepreneurs and companies, and the general feedback has been a sigh of relief, with some even expressing excitement.

We believe in the existence of 'animal spirits'.

Last week, Paul Ryan mentioned that the business confidence index had increased by 32% over the past 12 months. I believe this is a historical record in terms of the magnitude of change. From an economic perspective, the outlook for the next six months is very strong.

When it comes to the market, things are much more complicated, although there are many positive factors in the economy, the attractiveness of the ratio of earnings per share to bond yields is at one of the lowest levels in twenty years.

So for me, first, there is no strong viewpoint on the overall market trend; second, in our industry, changes themselves will bring about symbol fluctuations and investment opportunities, not to mention the drastic changes brought about by a transfer of power; third, at the level of the Stall Economy, what we see in terms of disruption and innovation, along with the trend of regulatory relaxation, will create many opportunities for everyone.

In short, do not worry too much about the overall market but rather focus on individual stocks.

• Question 2: From the perspective of the market and economy, how do you see it now? In our interview last October, you mentioned that you were shorting US government bonds, which made up 10% to 15% of your portfolio. Are you still shorting them?

Druckenmiller: Yes, we are still shorting government bonds.

Many people are surprised that rates have risen after the interest rate cut, but we are not surprised because we believe the Federal Reserve has made a mistake. We are also still concerned about the market's euphoric sentiment and the poor fiscal situation.

We may now be entering the "seventh inning" (note: a landmark part of a baseball game), and there will still be many opportunities to make money from the "seventh inning" to the "ninth inning" (note: the end of the game).

If the Federal Reserve's stimulus measures, combined with the market's euphoric sentiment, lead to higher inflation, we may not expect that, but we remain open to the possibility.

Inflation will not decline, and this may affect the Bonds market and cause problems. Based on this, we continue to short U.S. Treasuries, but the short position has not been increased.

• Question 3: You have also mentioned that you do not support tariffs, but if advanced in a moderate way, it can be considered as weighing two evils against each other.

Druckenmiller: Yes, but I do not wish to be called "Mr. Tariffs" after this interview.

Under ideal conditions, I would not support a 10% tariff, but we do not live in an ideal world.

Everyone knows that our fiscal problems are serious, with mandatory spending plus interest payments currently reaching 100% of income. Although both parties claim they will not cut welfare spending, this has become an unspoken understanding.

Therefore, we need to increase revenue, and the main options are income tax and consumption tax, such as tariffs. I say that increasing tariffs has relatively less negative effects in this case.

Facing fiscal issues, we need more revenue, and private savings rates are very low, prompting many economists to raise various warnings about tariffs. It sounds like everyone is relatively accepting of raising consumption tax; from my perspective, tariffs can be viewed as a consumption tax partially paid by foreigners.

The risk of doing so lies in provoking retaliation from other countries. As long as we keep tariffs within 10%, I believe the fear of Trump's tariff policy has been exaggerated. Thus, I think raising tariffs is a lesser of two evils.

• Question 4: Before the election, you stated that you wouldn't vote for Harris or Trump, partly due to your concerns about both parties' fiscal policies. You have also expressed worries about uncontrolled fiscal issues. Now that Scott Bessent has been nominated as the new Secretary of Treasury, whom you know well from your time at Soros Fund. What do you think about his appointment, and what are your expectations for fiscal policy now?

Druckenmiller: Scott is very capable, exceptionally intelligent, and thoughtful.

His experience is very unique; not long ago, during the confirmation hearing for Secretary of Treasury, I learned that he had been involved in capital markets in over forty countries. He understands the fiscal situation very well and is aware that the biggest risks for this administration are fiscal issues and inflation.

Nevertheless, he is not an all-powerful ruler. Of course, he is very persuasive; during our time together, he successfully convinced me many times.

However, the problems he faces are immense. Currently, the deficit accounts for 6.7% of GDP, already reaching 1.9 trillion USD. In 2017, during a time of strong employment, the deficit was only 3.4% of GDP.

If more than 1 trillion dollars in revenue from tariffs is obtained in the next decade, it would also be helpful. Our current situation is difficult because interest expenses are a huge and continually growing "elephant," exceeding defense spending and social security expenditures.

• Question 5: Although you have sold stocks of NVIDIA and Microsoft, as recent filings show, you still believe in AI and remain Bullish on innovation, right?

Druckenmiller: Yes, I do believe. I think we are in a two to three-year infrastructure construction phase that will bring many benefits to AI. I believe that by 2035, we will achieve General AI (AGI).

In the long run, I believe the returns will be enormous.

However, given the current valuation levels, we are a company that does not need to remain fully invested at all times. Of course, our portfolio still Holds a significant amount of Stocks, including long and short positions. We feel that many changes are coming.

• Question 6: If you have already sold stocks of companies like NVIDIA and Microsoft that are at the "top of the pyramid," which areas of AI do you believe have the most investment value from the market perspective?

Druckenmiller: It is still in the application layer.

As for model developers, we are still uncertain. They clearly need huge capital expenditures, especially ultra-large-scale computing centers. Whether these capital expenditures can bring investment returns remains unclear. However, we have already seen many companies use AI to reduce costs and improve productivity.

The application of AI in fields such as Medical Care is very broad, and moreover, it has potential in almost every sector.

It is not necessary to invest in companies that are considered "AI companies"; instead, focus on those that apply AI to their own Business. This is the direction we are looking for. Many companies we might not even have thought of will emerge.

Reflecting on the Internet Plus-Related era, you might not have anticipated companies like Uber or Facebook (now Meta). I believe the application of AI will be similar, as its application scenarios are almost limitless.

My viewpoint is to maintain an open mindset towards this.

• Question 7: After Trump was elected president, was there any way to control inflation within the first six months of his term?

According to Druckenmiller regarding inflation, I believe it is mainly the responsibility of the Federal Reserve. However, what worries me is that they have already cut rates by 100 basis points in the past two to three months.

While in Pittsburgh, we have an old saying, "If it ain't broke, don't fix it."

I really do not understand why they would take this risk and continue to cut rates while inflation remains above target, exacerbating the "animal spirits" effect I mentioned.

This is a potential risk. However, if the Federal Reserve can maintain a responsible attitude, I believe inflation has the possibility of being controlled.

Of course, I keep an open mind about this, and we need to see how things develop.

• Question 8: What is your view on the risks of the bond market? There is a famous saying that the bond market is one of the most powerful forces in politics. In what ways do you think the bond market will constrain this government?

Druckenmiller: This is a risk, but I don't believe it can be clearly predicted at this moment.

However, from historical experience - I have been in this industry for too long and may be a bit pessimistic - Congress and the government usually only take action when a crisis occurs. Therefore, I believe this pressure from the bond market may emerge in the next four years.

To be honest, I do not believe that both parties have the willingness to do the necessary things, such as controlling Medical Care benefits spending or reducing welfare expenditures. Usually, they are only forced to take action when a financial crisis really erupts, which is a historical pattern.

So that is the problem - we need the bond market to send clear signals.

But what disappoints me is that the Federal Reserve's policies seem to have fostered the trillions of dollars in fiscal spending over the past four to five years. This situation is obviously not a normal state we should be in.

We are no longer in a crisis. It is now a time of peace, and the economy has achieved full employment. It is time to plan well and take action.

• Question 9: You made quite a bit of money in currency trading in the past. What is your prediction for the dollar's trend in the coming years?

Druckenmiller: The trends in the coming years are too hard to predict due to too many complex factors, many of which we just discussed.

However, for now, I believe tariffs are very likely to be implemented, although today's Wall Street Journal report is relatively optimistic. These tariffs may bring some upward pressure on the dollar.

Additionally, the U.S. economy is 'vibrant,' while Europe appears 'sluggish,' which will also support a stronger dollar.

Overall, I think the dollar's performance is still quite good right now. It's like a baseball game; we may be in the seventh inning (the later stage), but oftentimes good returns can still be obtained in the late game.

As for the long-term trend, it will depend on how the factors we discussed earlier develop. Let's wait and see.

Editor/Somer