Stanley Druckenmiller says we’re in a ‘raging mania’ and the next 3 to 5 years will be challenging

The stock market is in a mania fueled by the Federal Reserve and investor speculation that will end badly in the coming years, longtime hedge fund manager Stanley Druckenmiller said Wednesday. 

“Everybody loves a party … but, inevitably, after a big party there’s a hangover,” Druckenmiller, CEO of the Duquesne Family Office, told CNBC’s “Squawk Box.” “Right now, we’re in an absolute raging mania. We’ve got commentators encouraging companies to do stock splits. Companies then go up 50%, 30%, 40% on stock splits. That brings no value, but the stocks go up.”

Tesla shares rallied 82.5% between Aug. 11 — when the company announced a 5-for-1 stock split — and Aug. 31, when the split took effect. Apple, meanwhile, jumped 34.2% between July 30 and Aug. 31 on news of a 4-for-1 stock split. The stock has fallen more than 12% since the split took effect. 

The S&P 500 is up more than 51% after hitting an intraday low on March 23. Last week, the broader-market index hit an all-time high before a roll-over in tech shares knocked it back below that level. This massive market rally is due in large part to the measures taken up by the Fed since the pandemic began, Druckenmiller said. 

He noted that, while the central bank did a “great job” in March by cutting rates and launching unprecedented stimulus programs to sustain the economy, the follow-up market rally “has been excessive.” Druckenmiller also said the Fed’s new inflation framework, which essentially lets the inflation rate run above 2% for an extended period of time before raising interest rates, represents a big risk the central bank is taking to stimulate the economy. 

“For the first time in a long time, I’m actually worried about inflation,” Druckenmiller said. “We actually have the chairman of the Federal Reserve with a $3.5 trillion deficit out lobbying Congress to do more spending and guaranteeing to those on Wall Street that he’ll underwrite it.”

“I think it’s dangerous. We could easily see 5% to 10% inflation in the next four or five years,” he said. 

Druckenmiller, known for making investments based on big macroeconomic calls, added he doesn’t know where the market will go in the near term. He noted, however, the next three to five years will be “very challenging” for the market.

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