Bessent’s Mentor Stanley Druckenmiller Calls Bond Buying a Mistake

**SPEAKER_1** (0:02)
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This is Bloomberg Businessweek Daily, reporting from the magazine that helps global leaders stay ahead, with insight on the people, companies, and trends shaping today's complex economy. Plus, global business, finance, and tech news as it happens. The Bloomberg Businessweek Daily podcast, with Carol Massar and Tim Stenovec on Bloomberg Radio.

**Tim Stenovec** (0:32)
Billionaire Stanley Druckenmiller, out with some harsh words for Treasury Secretary Scott Bessent. Druckenmiller writing in a Wall Street Journal opinion piece, governments defending prices against fundamentals always lose. The only variable is how much they spend before conceding. The US shouldn't put itself on the wrong side of that trade, not with the most important price in the world, and not when that price is trying to say the one thing Washington most needs to hear, let the bond market speak. Druckenmiller's comments coming off the back of Treasury last week, announcing an increase in purchases of long dated bonds. It's a move that markets are interpreting as an attempt to push down yields.
We knew there was one person we wanted to talk to about this because it was just a year ago that he had the Bloomberg Businessweek cover story about the Treasury Secretary. You can see the cover right there if you're watching us on TV or on YouTube. For that story, he interviewed Stan Druckenmiller. That's Erik Schatzker. He's the editorial director of Bloomberg New Economy. He joins us here in the Bloomberg Businessweek studio.
Erik, I want to get into Druckenmiller's history with the Treasury Secretary, with George Soros.

**Erik Schatzker** (1:36)
Sure.

**Tim Stenovec** (1:36)
Before we do that, why is it such a big deal that he went to the Journal with this opinion piece?

**Erik Schatzker** (1:42)
Well, first of all, the Journal is the place that Stan Druckenmiller typically goes if he wants to make a public statement. So that part of it is not unusual, but he does not do this very often. So pay attention when he does. And why do we pay attention to Stan Druckenmiller? Because few people would argue that he is the best investor in modern history. Never a down year when he was running Duquesne Capital Management. He was George Soros' Chief Investment Officer.
He hired Scott Bessent in 1991 He sent Scott Bessent to England. It was on the basis of information, partly on the basis of information that Scott Bessent was providing, working for Soros Fund Management in the early 1990s, that Druckenmiller and Soros decided to bet against the British Pound. They shorted it and broke the Bank of England. And it is that fundamental truth that governments defending prices against fundamentals always lose that was proven there and which Druckenmiller argues will once again be proven here.

**Tim Stenovec** (2:48)
So take us to today and we'll actually to last week because...

**Erik Schatzker** (2:54)
We do need for the benefit of many to review what sparked, right, this disagreement at the very least or this right post from from Stan Druckenmiller, which by the way, you cannot not look at as anything but a harsh scolding, right? The mentor publicly admonishing his protege.
And it would also add, for those who haven't read it, go and read it. If you're lucky enough to have a Bloomberg terminal, it's simple. NH space WSJ, put in Druckenmiller as a keyword, it'll come up. You can of course read it in the Wall Street Journal. You will look long and hard to find a piece of writing this savage and this devastating. I mean that.
So, last week, the Treasury announces that it is going to double the size of its long-term bond buyback program from $2 billion to $4 billion. And then Bessent doubles down effectively and says, well, we might spend more than $4 billion.
And Druckenmiller says $4 billion understates the gravity of this mistake. And I have for my own purposes broken it down into four component parts. This is how Druckenmiller dismantles the argument behind a long-term bond buyback program. Number one, it's unwarranted. There is no crisis. Yes, yields are rising, but that is the market functioning the way it is supposed to function, right? Pricing in the growing risk of two things. One, inflation or more inflation. We have some already, obviously. And two, the growing possibility of a US government default. This is what the bond market does. It is not March of 2020 This is not the 2022 crisis in UK gilts, right? The cost Liz trusts her job as prime minister.
There were, as Druckenmiller points out, no failed auctions, no dealer balance sheet seizure, no forced unwinds. Number two, it's hypocritical. Who was more critical of quantitative easing? Maybe some people, but few more vocal and more aggressively so than Scott Bessent. And Druckenmiller points out that this is effectively a version of QE. And so what you have, what the other thing he hated about QE was that, Bessent that is, he made the case that it was a blurring of the lines between fiscal policy and monetary policy. And here you have the treasury department, the treasury secretary usurping the authority of the Fed chairman. Number three, going back to this idea of fundamentals, it violates one of the cardinal laws of the financial universe, right? Governments will always lose when they try to fight fundamentals. Again, I mentioned that this is exactly what Druckenmiller and George Soros proved when they bet against the Bank of England.