Salient to Investors:

Stanley Druckenmiller said:

The poverty rate for seniors over the last 35 years has dropped from 35% to 9%, while their wealth has dramatically increased

The numbers of seniors is about to explode and there is no way we can pay for what we have promised them.

 The US is a country of special interests, where seniors vote consistently and young people don’t.

Most seniors don’t know they are getting so much more. I estimate 85% of seniors would be uncomfortable with the generational theft if they knew the numbers and the debt they will be leaving their children and grandchildren.

Nicholas Eberstadt research shows we are a nation of takers. Federal government entitlement transfers as a percent of federal budget outlays  is at all time high of over 72% versus 28% in 1960 – almost all of the money went to the elderly, coming from children, education, infrastructure and not productive investments.

This is the first generation where 30-year olds are worse off than their parents were at their age. The FRB survey of consumer finances shows the change in average net worth by age group from 1983 to 2010:

    • Ages 20-28: +5%
    • Ages 29-37: -21%
    • Ages 38-46: +26%
    • Ages 47-55: +76%
    • Ages 56-64: +120%
    • Ages 65-73: +79%
    • Ages 74 and over: +149%

I made most of my money in the bond and currency markets by forecasting economic trends and seeing problems happening. I took great advantage of catastrophes in financial markets as I was good at looking round corners and prediction them.

I am politically independent. I drank the Obama hope and Kool-Aide in 2008, but in hindsight, he needed more experience and I thought he would be more Clinton-like and move to center but he hasn’t.

The Can Kicks Back study shows the net lifetime benefits of the unborn is minus $420,600 and of those aged 65 is plus $327,400. Is is unfair that a current senior will get $700,000 more than a future senior.

It totally matters who the next Fed chairman is because it is a really important appointment and should have been made by now instead of becoming a circus. Both Summers and Yellen already have a platform to discuss economic policy and don’t need to be Fed chairman to do so.

Pete Peterson is focused more on the debt catastrophe that is about to happen, whereas I am focused more on generational theft.

I am waiting for the next big shock and currently have the smallest position in equities after having a big position earlier in 2013. I am patient and then go crazy but am not seeing anything now. I feel lost so won’t play until I don’t feel lost. I am long some Japanese equities but my position there was bigger earlier in the year. I am short some yen.

The market is topping, but then I have predicted 7 of the last 3 bear markets – I started in 1976 I tend to have a bearish bias. I am waiting to see who is the new Fed chairman.

Dislike the quarterly performance and risk-adjusted return philosophy that has invaded hedge fund management. Other than 15 managers, I cannot imagine why anybody would pay 2%+20%. When I started there were just 8 to 10 hedge fund managers and we were expected to make 20% even in down markets. The are too many hedge funds now to be successful – 9,000 funds are pricing their product on the back of the performance of the 8 to 10 managers back then.

I do invest in hedge funds and being in the business for 35 years am able to judge the fund’s investment philosophy. Hedge funds are neither good or bad. Hedge funds advertising their portfolio positions is bad.

The Fed said it was targeting asset prices and it has mostly manipulated stock prices. But as long as the Fed prints money we are not close to a bear market which is why tapering is very important. Removing QE over 9 months is a big deal because QE subsidized all asset classes and its removal would send the markets down. The mere hint in June by the Fed that it would taper in three months and then only if the economy was stronger caused havoc and risk around the world, so anyone believing markets won’t drop when it actually happens are silly.

It takes hundreds of millions of dollars to take a stock up but the minute you have phony buying stop it can go down on no volume immediately.

If you make currency bets and you don’t have the fundamentals with you then you may win for a little while but you will end up losing. You can make money in bonds if you can correctly predict economic changes.

I have been really wrong on the bond market for last 3 or 4 months. I had been waiting for bond prices to decline  for 2 years and completely missed it when they despite the economy softening.

People say the fiscal debt is fixable but is not the case because the numbers do not include demographics. In 1947, the fertility rate was over 3 and now it is 2, and for the next 20 years there will be 11,000 new seniors every day. We will have 2.5 workers for every senior and is not counted on the government balance sheet.

The Can Kicks Back data shows total debt on the books at 12 or 16 trillion (depending on whether the Fed or the Treasury actually owns it) but when you present value what we have promised seniors and future tax revenues, the debt is $200 trillion – and that should be on the balance sheet.

Even Paul Ryan said let’s exempt those 55 and over despite that cohort already having got a huge piece of the pie.

 

Watch the video at  http://www.bloomberg.com/news/2013-09-11/stan-druckenmiller-says-fed-exit-would-be-big-deal-for-markets.html

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