According to veteran investor Stanley Druckenmiller, debt-fueled disasters could be coming to China and the U.S. soon. In fact, Druckenmiller warned a panel of top investors in New York City on Wednesday about possible issues heading our way. These, of course, stem from the debt Beijing has amassed over the last decade. The legendary money manager also pointed out that China has spent trillions of dollars on stimulus projects that have led to overcapacity.
While it’s usually China in the role of debt collector – this recent explosion of debt is quite alarming and extremely rare. In fact, Druckenmiller referred to the amount of debt that China has accrued as “dangerous.” He also compared the current Chinese situation with “subprime mania”, which of course blanketed the U.S. back in the early 2000s. We all know how that ended.
A Chinese Commodities Bubble?
The Chinese debt situation has impacted both the domestic and global markets. Speaking at the 21st Annual Sohn Investment Conference, Druckenmiller echoed those sentiments by saying China “does not need more debt or more houses. They already have too much of each.” The iconic investor, however, saved his harshest criticism for the Federal Reserve and its incredibly low interest rates.
While China is surely fueling a commodities bubble, the Federal Reserve is being accused of shortsighted tactics. This includes borrowing from the future and trying to manipulate the stock market in many ways. With this in mind, Druckenmiller stated that U.S. central bank is trying to ensure that S&P goes another six months without a 20% decline.
He also fears the Fed’s dovish approach has removed pressure on politicians trying to tackle tax reform and entitlement. With China looming towards financial disaster – and the Fed with questionable tactics – the market forecast and outlook looks bleak. However, Druckenmiller was positive on gold commodities, saying the yellow metal continues to skyrocket in 2016.