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Stanley Druckenmiller: If a 'crazy' Democrat beats Trump, stocks will drop 'a lot'

Key Points
  • Druckenmiller thinks President Trump will lose his re-election bid, but he's especially concerned that a far-left Democrat will beat him and hurt stocks.
  • "I think if he does lose, particularly if I'm wrong and a crazy beats him, I mean it's worth a lot of P/E points. A lot," Druckenmiller says.
Stanley Druckenmiller
Adam Jeffery | CNBC

Billionaire hedge fund investor Stanley Druckenmiller warned that if one of the "crazy" Democrat presidential candidates beats President Donald Trump in 2020, the stock market could see a big sell-off.

Druckenmiller said he believes Trump will lose his re-election bid thanks to discontent in key swing states. He just hopes the winner is more centrist and not one espousing socialist policies.

"I think if he does lose, particularly if I'm wrong and a crazy beats him, I mean it's worth a lot of P/E points. A lot," he told Key Square Capital Management founder Scott Bessent at The Economic Club of New York.

P/E is shorthand for the price-earnings ratio, a metric used by investors to gauge the relative expensiveness of securities. When P/Es are high, investors believe the growth outlook for the economy is strong and are willing to pay more for each dollar of earnings. It's the viewpoint of Druckenmiller and other hedge fund managers that a far-left candidate would reduce investors' appetite for paying up for stocks.

Druckenmiller believes Trump got lucky in 2016 and may not have the same good fortune this time if the Democrats run someone more centrist.

"I personally think it's going to depend on the Democratic candidate, but he drew an inside straight: he won seven out of seven states by less than half a percent," Druckenmiller said. "If you go county by county in Pennsylvania, Michigan and Wisconsin, he is in deep, deep, deep trouble. And that was with the economy growing at 3%."

Progressive plans for big business have placed many on Wall Street against left-wing factions of the Democratic Party and their candidates. Sen. Bernie Sanders, a self-described democratic socialist, is the No. 2 favorite to win the nomination behind former Vice President Joe Biden, according to recent polls.

The Vermont senator outlined a plan in a New York Times op-ed earlier this year that would prevent companies from buying back their own shares unless they first pay workers at least $15 an hour and offer paid time off and health benefits. Such proposals have draw criticism from more centrist or politically conservative factions.

Unless the Democrats "put up one of the two, three crazies — I can't remember how many there are — I'm assuming he's going to get beat," Druckenmiller said Monday. "I think the market assumes" Trump is going to win, the investor added.

Druckenmiller is the former chairman of Duquesne Capital, where he generated annualized returns of 30% during his investment career.