Whenever some of the best investors on Wall Street share their views on the stock market, investors would benefit from tuning in and attempting to reverse-engineer these decisions and where they are coming from. Today, it isn't the classic Warren Buffett breakdown for value investing but rather a more aggressive 'swing' trading view from one of the best.

Stanley Druckenmiller, who is responsible for most of George Soros' track record at Quantum, has suddenly shifted to a long-term view that not many were expecting. After taking this shift into account, however, it makes all the sense in the world. In Druckenmiller's bias, the list to consider today includes the iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT) as a macro view, but others are worth mentioning here.

While not directly mentioned, Druckenmiller's view on Asia's powerhouse markets could lead investors to consider a potential buy in Japan's leading blue-chip automotive stock through shares of Toyota Motor Co. (NYSE: TM). Finally, while most are chasing the tail end of the China rally, Druckenmiller sends a warning for those who are overweight on names like Alibaba Group (NYSE: BABA).

Druckenmiller Warns Inflation Is Here to Stay, and Bonds May Be a Risky Bet for Investors

Even after the Federal Reserve (the Fed) 's massive shift in policy to control inflation, Stanley Druckenmiller thinks that higher inflation is here to stay. Investors need to understand that even though inflation rates went down after the Fed hiked interest rates post-COVID-19, that doesn’t fix the damage caused.

Once prices rise, they are likely to stay high for most products and services in the economy, especially for the consumer staples sector and financial services like insurance. That means that while inflation rates are lower, they are unlikely to go negative to bring the U.S. economy back to the prices previously experienced before the pandemic.

For this reason, Druckenmiller warns that bonds might not be a good investment since when inflation goes up, bond yields tend to follow. Knowing that the price of bonds moves inversely to their yields, this could cause a potentially long-term bear market in bonds.

As his choice, Druckenmiller is now going short the iShares Bond ETF. However, he says this bet could pay off in six months or years. Hence, investors need to extrapolate this view into a more reasonable timeframe for other products affected by inflation.

Some of these include dollar-quoted commodities like gold and oil, where the SPDR Gold Shares (NYSEARCA: GLD) has outperformed most peers, and where single energy sector stocks like Occidental Petroleum Co. (NYSE: OXY) and Chesapeake Energy Co. (NYSE: CHK) have caught the attention of some institutional investors lately.

Druckenmiller's Strategy for Asia's New Economic Cycle

While most of the market’s preference seems to be for Chinese stocks, Druckenmiller has something in common with Warren Buffet today. They both prefer Japan’s market over China during this new cycle, with Druckenmiller specifically quoting that as long as Xi Jinping stays in power, he won’t be looking into Chinese investments.

This could serve as a warning for Alibaba investors, who may have been caught in the recent rally only to find out that the underlying economy and government stimulus are not being perceived as enough to keep the momentum going today.

What the sharp sell-off from the 52-week highs suggest might not be a good thing for future investors in China.

By selling off sharply from the recent highs, investors don’t have to assume that new short-selling activity is taking place, but rather that old businesses are taking profits after waiting for over two years in a stock that barely managed to break out of its trading channel.

Druckenmiller allegedly preferred to look into Japan to avoid falling into this bull trap. Now that Toyota stock trades at only 68% of its 52-week high, it might pose a potential buying opportunity for investors interested in Japanese exposure today.

Knowing this might be the case for Toyota, bearish traders also decided to step away from the playing field, as judged by the stock’s 18.8% decline in short interest over the past month, completing a quarterly downtrend in interest from short sellers.

To replace these bears, some institutional investors came in to buy Toyota stock as of October 2024. Leading the way were those at Creative Planning, boosting their holdings in the stock by 2.6%.

While that boost may not seem like much on a percentage basis, it was enough to bring the allocator’s stake up to $13.8 million today.