Stanley Druckenmiller rings the alarm on an imminent recession - and says AI could rival the internet in impact

• Stanley Druckenmiller predicts a "hard landing" for the US economy, and a recession in short order.
• The investor cited falling retail sales and ongoing banking pressures as key headwinds.

The US economy is headed for a "hard landing" and could slump into recession soon, Stanley Druckenmiller has warned.

The billionaire investor and boss of Duquesne Family Office suggested a downturn could set in this quarter, and cautioned against assuming a modest decline.

"I am not predicting something worse than 2008," he said during the 2023 Sohn Investment Conference on Tuesday, according to Bloomberg. "It's just naive not to be open-minded to something really, really bad happening."

Druckenmiller pointed to retail sales, which dropped 1% in March compared to February, as one sign of economic weakness.

He also cited the current turmoil in the regional banking sector, fueled by the sudden collapse of Silicon Valley Bank and Signature Bank in March, and JPMorgan's takeover of the troubled First Republic Bank this month.

Druckenmiller suggested the impending slowdown could see US unemployment spike above 5%, corporate profits tumble 20% or more, and the number of bankruptcies surge. On the other hand, he predicted that bargains would materialize in markets, and advised investors to have cash ready to deploy.

On a separate note, Druckenmiller hailed artificial intelligence as a game-changing technology. The launch of ChatGPT and other generative language models has reignited excitement about the space in recent months.

"AI is very, very real and could be every bit as impactful as the internet," he said.

Dangerous spending

Druckenmiller, the former lead portfolio manager of George Soros' Quantum Fund, blasted the US government for spending too much, and argued it will have no choice but to cut social programs. Moreover, he criticized the Federal Reserve for not raising rates after the COVID-19 pandemic threat faded.

"We basically wasted all our bullets," he said.

Druckenmiller recently described US fiscal policy over the past decade as a "horror movie," and compared the potential fallout from overspending to a "200-foot tsunami."

Rock-bottom interest rates and historic amounts of government spending, coupled with supply shocks including Russia's invasion of Ukraine, helped to drive inflation to 40-year highs last year.

In response, the Fed has hiked rates to upwards of 5%. The increases have squeezed consumers and businesses, fanned recession fears, and stoked concerns that lenders could pull back and cause a credit crunch.