Dear PGM Capital Blog readers,
Billionaire investor George Soros and his former partner Stanley Druckenmiller, who made a fortune betting against the British pound in 1992, disclosed on Monday, May 16, big bet on gold during the first quarter of this year this according to their regulatory filings.
GEORGE SOROS:
During the first quarter the legendary investor purchased US$264 million worth of shares of Barrick Gold (NYSE: ABX), the world’s largest gold miner he also acquired 1.1 million options to buy the popular SPDR Gold ETF ( NYSE: GLD), which mirrors the price of gold.
Gold prices tend to move higher when people are afraid. The precious metal is up more than 20% this year as can be seen from below chart.
Soros also doubled his bet against the S&P 500. The billionaire now owns 2.1 million put options on the SPDR S&P 500 ETF (SPY), which closely tracks the performance of the benchmark index.
Put options are a way to bet that an investment is going to lose value.
STANLEY DRUCKENMILLER:
George Soros isn’t the only one sounding very cautious lately. Stanley Druckenmiller, who served as the lead portfolio manager at Soros’s hedge fund when it took on the Bank of England on Wednesday September 16, 1992, – Black Wednesday -, said at the Ira Sohn conference last week that he is wary of the short-term future of the stock market.
In a speech during that conference he said:
“The bull market is exhausting itself… the Fed has borrowed from future consumption more than ever before.
It is the least data dependent Fed in history.
This is the longest deviation from historical norms in terms of Fed dovishness than I have ever seen in my career,”
Druckenmiller, a macro investor who wagers on global trends he perceives, explaining his interest in gold. He has almost a fifth of his portfolio in call options on the SPDR Gold Trust (NYSE: GLD).
Based on this he also said during the Ira Sohn conference:
“Gold remains our largest currency allocation.”
PGM CAPITAL ANALYSIS AND COMMENTS:
George Soros:
Legendary investor George Soros sold 37% of his long stock exposure last quarter and bought a lot more gold and gold stocks.
Soros, who made his fortune over the last few decades from his macro views on capital markets, is now worried about the global economy and is bullish on gold.
George Soros is not alone about being worried about U.S. stocks and a global economic slowdown. Gold and gold stocks are one of the direct beneficiaries of the so-called “risk-off” environment. In fact, Gold is one of the strongest performing markets in 2016 and gold stocks continue to be one of the strongest performing sectors on Wall Street.
Stanley Druckenmiller:
As an investor how do you not pay attention to a man who has the track record of Stanley Druckenmiller?
Do you think that he just got lucky year after year for 25 years while managing Duquesne Capital Management?
For a 25-year period from 1986 through 2010, Stan Druckenmiller achieved an annualized rate of return of 30%. That is incredible.
At the Ira Sohn conference 11 years earlier in 2005 Stan Druckenmiller argued that the Federal Reserve under Alan Greenspan was fueling a housing bubble that would end badly. If you listened to Druckenmiller then you were glad you did. You would have avoided owning financial stocks into a historic market crash.
At the Ira Sohn this year Druckenmiller said that right now is just like the lead up to the 2008 financial crisis, except that the 2008 collapse would “pale in comparison” comparison to what will happen this time.
Those are the words of a man who is not someone who should be ignored.
Fortunately Druckenmiller also was willing to advise us on what to do and to protect ourselves from the risks he sees.
That advice is basically:
To sell everything and buy gold!
THE CNNMoney’s Fear & Greed Index:
By contrast, CNNMoney’s Fear & Greed Index closed on Friday, May 20 modestly in “greed” mode as can be seen from below chart.
Here’s another telling clue from Soros: the value of his hedge fund’s holdings shrank from $6.1 billion at the end of 2015 to $4.5 billion as of the end of the first quarter.
Gold:
Gold is a sensible hedge as it’s not just about being bearish on the Dollar but about being bearish on other global currencies, which are still devaluing their way to negative rates.
Would you rather have Yen or gold? Yuan or gold? Euros or gold?
There may not even be a Euro if the UK votes for a Brexit next month, which doesn’t leave a lot of choices if you want to diversify your Dollars and gold is, technically, a currency.
Last but not least, before following any investing advice, always consider your investment horizon, risk tolerance and financial situation and be aware that prices of precious metals and the stock of their producers might be very volatile and that sharp corrections may happen in the short term.
Yours sincerely,
Eric Panneflek