Bill Ackman sees a classic bubble fueled by more than a decade of unprecedented monetary policy implemented by the Federal Reserve.
For many of the regular readers of WTI and avid market watchers, Bill Ackman sees a classic bubble view will come as no surprise.
So, Bill Ackman has not stumbled on some award-winning thesis, bearing in mind that the billionaire investor is saying nothing new.
Indeed, Bill Ackman is joining an already crowded choir of Wall Street titans singing from the same hymn sheet from Warren Buffett who is hording cash to John Paulson warning about a classic bubble.
Bill Ackman is echoing bearish growls from Goldman Sachs’ David Solomon, who believes that the market is a bubble created by the Fed’s easy-money policies.
“Bill Ackman sees a classic bubble fueled by more than a decade of unprecedented monetary policy implemented by the Federal Reserve”
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If the founder of Pershing Square Bill Ackman sees a classic bubble, how then is the billionaire hedge fund manager gaming it
If you prefer FT language, how is the money manager positioning his portfolio?
Step one, Bill Ackman is lobbying the Fed to change the trajectory of monetary policy.
After all, billionaires influencing policymakers so that they can magnify their private wealth is business as usual.
We assume that WTI is for a mature audience of readers who no longer believe in the tooth fairy and the one man one vote democracy charade. So as adults, we all know that big money influences politics and that if you want a senior politician’s ear these days, unless you are in the billionaire club you are not going to cut it.
Bill Ackman sees a classic bubble and he is on a mission to influence Fed policy
Here is a recent Bill Ackman’s tweet that confirms that he made a presentation to the Fed monetary policy committee.
“I gave a presentation https://newyorkfed.org/medialibrary/media/aboutthefed/pdf/IACFM-presentation-Oct-2021 to the Federal Reserve Bank of New York last week to share our views on inflation and Fed policy. The bottom line: we think the Fed should taper immediately and begin raising rates as soon as possible,” tweeted Bill Ackman October 29.
“billionaires influencing policymakers so that they can magnify their private wealth is business as usual”
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“We are continuing to dance while the music is playing, and it is time to turn down the music and settle down,” added Bill Ackman.
At a conference sponsored by S&P Global Ratings in November, Bill Ackman said: “We are in a classic bubble which has been driven by the Fed.”
“Every indicator is flashing red,” he said, talking about rising prices across asset classes.
“I think the Fed will be forced to tighten much more quickly” – Bill Ackman
Ackman referred to inflation as the biggest risk for his hedge fund this year and predicted the Fed would have to raise rates soon
“I think the Fed will be forced to tighten much more quickly,” said Bill Ackman.
He noted that the Fed’s current easy money policy has not been successful in increasing the worker participation rates. Indeed, fourth revolution technologies the rise of automation, and the next generation of artificial intelligence is likely to lead to even further declining worker participation rates.
Bill Ackman also believes that recent price increases “may not be transitory” and, instead, could be the result of structural changes.
As crude prices start to slide down due to a wave of restrictive pandemic measures to control the spread of the new variant in Europe, we believe a Fed rate hike is now more plausible.
So, if crude prices fall by more than 30% from its all-time high then that would more than offset a small Fed rate hike. Suppressed crude prices would also lower inflation expectations.
The US will release 50 million barrels of crude from the Strategic Petroleum Reserve, the White House said Tuesday. The move is a coordinated effort between energy-consuming nations, including China and Japan, to combat the rapid rise in energy prices.
A Fed rate hike would support USD, which would also lower inflation bearing in mind that soft and hard commodities are all priced in USD.
“As we have previously disclosed, we have put our money where our mouth is in hedging our exposure to an upward move in rates, as we believe that a rise in rates could negatively impact our long-only equity portfolio” – Bill Ackman
Bill Ackman sees a classic bubble, which he believes will pop when the Fed starts tightening and he is hedging his portfolio
“As we have previously disclosed, we have put our money where our mouth is in hedging our exposure to an upward move in rates, as we believe that a rise in rates could negatively impact our long-only equity portfolio,” tweeted Bill Ackman October 29.
But if crude prices are suppressed, through lockdowns or the release of strategic reserves the collateral damage to markets from a Fed rate hike might be less than what Bill Ackman is betting on. In other words, the economy is better insulated to higher yields and rates if oil prices are lower.
Moreover, Bill Ackman sees a classic bubble but is the greatest bubble in cash?
Another way of looking at historically high stock prices in relation to earnings is to see the high prices due to currency debasement due to the money supply M2 going to the moon. In other words, currency debasement gives the illusion that stock prices are going up. It is the hyper inflated money supply that could make holding cash the worse option.
So, if cash is trash, then selling stocks because you believe prices are in a bubble, to then sideline into an even greater bubble might not work out.