The financial titan who once joined forces with Soros to take down the Bank of England is now plotting a "big case" against the Federal Reserve.
In 1992, financial mogul George Soros made a name for himself by shorting the British pound and defeating the Bank of England. Thirty years later, Soros's protégé and former number two at Soros Fund Management, Stanley Druckenmiller, is also planning to take on the Federal Reserve?
According to media reports citing informed sources, at a meeting in early October, Druckenmiller revealed that he is shorting U.S. Treasury bonds, with the position potentially accounting for 15%-20% of his portfolio.
Druckenmiller expects inflation to soar to the stagflation levels of the 1970s, at which point the Federal Reserve will be unable to cut interest rates as the market imagines, or even at all.
In other words, Druckenmiller is not optimistic about the inflation outlook and is betting that there is still room for U.S. Treasury yields to rise.
This bet clearly goes against the market and the Federal Reserve. The FedWatch tool from the Chicago Mercantile Exchange shows that traders expect two more rate cuts this year, with a total reduction of 50 basis points.
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The latest dot plot released by the Federal Reserve in September also indicates that there will be at least two more rate cuts of 25 basis points each in the remaining two meetings of the year.
However, this news is not certain, and it is unknown whether Druckenmiller is shorting medium to long-term U.S. Treasury bonds or short-term bonds, nor is it clear how long the short-selling trade will last. Reports say that Druckenmiller's statement is "it could be 6 months or 6 years."
Public information shows that as of its closure in 2010, Druckenmiller's Duquesne Family Office had an average return rate of 30% over thirty years, higher than that of Buffett's Berkshire Hathaway.