For more than three decades his funds averaged 30% annual returns.
In 2008, the average hedge fund lost 19%, he posted an 11% gain.
In 2009 his fund doubled the return of the average hedge fund.
In 2010, he pulled the ultimate move for any hedge fund kingpin...he shut it all down.
After an amazing run, he had too much money to be managed effectively, and decided to just manage his own money.
Now, he’s detailed a major (and troubling) market trend few investors will ever understand until it’s too late.
Former Hedge Fund King’s Dire Warning
The hedge fund manager I’m talking about is Stanley Druckenmiller, founder Duquesne Capital.
His track record speaks for itself.
Druckenmiller is a “big picture” specialist.
He didn’t make his and his investors fortunes by picking great stocks. He did it by getting the big market moves right.
That’s why two charts he presented recently at an investment conference should be noted by all investors.
The first chart is something Profit Alert readers are well familiar with.
It’s about the steady deterioration of earnings and cash flows across the market.
The chart below shows how companies have loaded up on debt with very little to show for it:
The red line is EBITDA (a simplified measurement of cash flow from operations).
The pink line is debt.
The divergence in the two is unprecedented.
Normally, adding debt would result in higher cash flows. After all, most companies won’t take on debt unless it’s to fund investment that’s going to result in enough cash flows to pay off the debt and add to the bottom line.
That’s not happening today and it’s creating a major problem as shown in Druckenmiller’s second chart.
In this chart he shows where all the money from that debt has gone:
The key to this chart is the light green and the purple bars.
The purple bar represents the amount of stock buybacks and acquisitions.
These aren’t investments in growth and expansion. They’re largely financial engineering.
An acquisition takes the assets and earnings from one company and adds them to the buying company. There may have been a few efficiencies achieved. But there weren’t any new businesses built or anything like that.
The light green bars are the “capital expenditures.”
This is the investment in capital. Think factories, computer systems, new trucks, and everything else needed for expansion of a business.
Capital expenditure was booming in 90s. Hence the true economic boom at the time.
In the current “recovery,” capital expenditure has been virtually non-existent. The economy reflects it too.
What He’s Buying Now
All of this is why Druckenmiller is not particularly positive on stocks.
However, he did reveal his current largest holding at the time.
It’s gold. Specifically, the SPDR Gold Trust (GLD) ETF.
Druckenmiller is not a world-is-coming-to-an-end type.
It’s stockpiling ammo, freeze-dried food, and gold in a secret bunker.
He’s doing what he’s always doing -- seeing problems early and turning them into opportunities.
Something more than worth considering.