Add Bill Ackman to the roster of financial icons who are convinced that the Fed is making a huge policy error by waiting to hike until the second half of 2022 (or as soon as June, if the Eurodollar strip is correct)
One week after legendary trader Paul Tudor Jones excoriated the Fed, saying in an interview with CNBC that the Fed was employing what may be the most inappropriate monetary policy of his lifetime, and that high inflation is likely to remain stubborn and potentially “much worse than what we fear”, moments ago Pershing Square’s billionaire boss, Bill Ackman, revealed on twitter that he “gave a presentation 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.“
Ackman was not shy in revealing that he was obviously talking his book, stating that “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.”
In other words, Ackman is short rates, although it is unclear for now how large his exposure is.
His poetic conclusion: “We are continuing to dance while the music is playing, and it is time to turn down the music and settle down.”
We are continuing to dance while the music is playing, and it is time to turn down the music and settle down.
— Bill Ackman (@BillAckman) October 29, 2021
So what was in his 15 page pitch to the Fed to hike rates? Nothing that we haven’t seen many times before:
In the presentation, Ackman has included slides discussing the “substantial progress toward full employment”…
… including the record job openings…
… which he sees normalizing soon as covid-impacted sectors are “poised for continued recovery as the Delta variant subsides.”
And with inflation moving from “runaway” and entering “galloping” territory, as “the annualized pace of growth across several key inflation measures, including wage inflation, has remained elevated in the mid to high-single-digit range, considerably in excess of the Federal Reserve’s long-term target of 2%”…
… as “both the unemployment rate is lower AND inflation measures are substantially higher today than at the beginning of prior rate hike cycles”…
… Ackman pointed to the Bank of England recently revising its views on inflation…-
… as well as the IMF warning on inflation and urging central banks to get ready to tighten policy.
Ackman’s conclusion: “A “wait and see” approach to raising interest rates creates significant risks given the substantial progress to date on employment and inflation combined with the unprecedented economic backdrop”
Translation: he is super short bonds and the cost of carry is starting to bite, so will the Fed please go ahead and hike asap.
His full presentation is below (pdf link).