- Bill Ackman wants the Federal Reserve to immediately taper its stimulus and raise interest rates.
- The Pershing Square chief has hedged against rate hikes to protect his fund’s stock portfolio.
- Ackman referenced an notorious quote from the financial crisis to hammer home his message.
Bill Ackman called for the Federal Reserve to reduce its stimulus spending and raise interest rates, confirmed he’s hedged against rate hikes, and referenced a notorious Wall Street quote in a string of tweets on Saturday.
The billionaire investor and Pershing Square boss shared a recent presentation he delivered to the Federal Reserve Bank of New York. It highlighted elevated inflation and robust jobs growth in recent months, and predicted those trends would continue as the US economy reopens following the pandemic, and the Biden administration seeks to spend upwards of $US2 ($AU3) trillion on infrastructure and social programs.
“The bottom line: we think the Fed should taper immediately and begin raising rates as soon as possible,” Ackman tweeted.
The hedge fund manager has taken steps to protect his fund against higher rates. Pershing Square plowed $US157 ($AU209) million into interest-rate “swaptions” between December last year and February this year, and those derivatives had appreciated by about 150% as of late May, Ackman disclosed earlier this year.
“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,” he tweeted on Saturday.
Ackman underlined the need to tighten monetary policy and cool the US economy by referencing Chuck Prince’s iconic line. “As long as the music is playing, you’ve got to get up and dance,” the former Citi CEO said in July 2007, encapsulating Wall Street’s herd mentality and willful ignorance of systemic risks before the 2008 financial crisis.
“We are continuing to dance while the music is playing, and it is time to turn down the music and settle down,” Ackman tweeted.
The investor’s tweet might also be a nod to a Warren Buffett comparison of speculation in heady markets to Cinderella at the ball. The Berkshire Hathaway CEO made the analogy in a letter to his shareholders after the dot-com bubble burst.
“They are dancing in a room in which the clocks have no hands,” Buffett said about people who buy into bubbles and plan to get out just before they burst, and everything turns into pumpkins and mice.