US Markets
Monday, October 2nd, 2023 10:36 pm EDT
Key Points
- Bill Ackman, the founder of Pershing Square, has expressed concerns about the state of the economy, which he believes is starting to slow down due to aggressive interest rate hikes.
- Ackman suggests that the Federal Reserve has likely completed its cycle of rate hikes and that the high level of real interest rates is beginning to have a dampening effect on economic activity.
- The Federal Reserve has raised interest rates in an effort to combat stubbornly high inflation, reaching levels not seen since early 2001. The central bank has also signaled that borrowing costs will remain elevated for an extended period.
- Many on Wall Street are becoming increasingly worried about the possibility of a recession as the economy experiences the delayed effects of the significant tightening measures implemented since March of the previous year.
- Ackman points out the impact of high mortgage and credit card rates on the economy, which he believes is still solid but showing signs of weakening.
- He anticipates that long-term Treasury yields could rise further, with the 30-year rate possibly reaching the mid-5% range and the benchmark 10-year rate approaching 5%. As a hedge, Ackman continues to short 30-year Treasury bills.
- The 10-year Treasury note recently yielded 4.64%, touching a 15-year high, while the 30-year yield was about 4.76%. Ackman believes the 30-year Treasury rate is likely to increase further.
- Ackman highlights the challenges faced by investors who have borrowed at low fixed rates and are now facing repricing, particularly in the commercial real estate market. He sees this as a significant threat.
Bill Ackman, the billionaire hedge fund manager at Pershing Square, has expressed concerns about the state of the economy, suggesting it is starting to decelerate due to aggressive rate hikes. Ackman believes the Federal Reserve may have reached the end of its rate-hiking cycle, and the economy is beginning to slow down as a result. The high real interest rates implemented to combat inflation are now at a level that could have a dampening effect.
The Federal Reserve has raised interest rates to their highest levels since 2001, with plans to keep borrowing costs elevated for an extended period. This tightening monetary policy has sparked concerns of a potential recession, as the economy grapples with the repercussions of these measures.
Ackman points to the impact of high mortgage and credit card rates, which are starting to affect the economy. While he acknowledges that the economy remains relatively solid, he sees signs of weakening.
In terms of Treasury yields, Ackman predicts that long-term yields could rise further. He envisions the 30-year rate testing the mid-5% range and the 10-year rate approaching 5%. As a hedge, he continues to short 30-year Treasury bills.
The 10-year Treasury note recently yielded 4.64%, touching a 15-year high, while the 30-year yield was approximately 4.76%. Ackman believes the 30-year Treasury rate is likely to rise further, driven by expectations of persistent structural inflation.
One significant concern Ackman highlights is for investors who have borrowed at low fixed rates and are now facing repricing, particularly in the commercial real estate market. He suggests this could pose a substantial challenge.
Finally, it’s worth noting that U.S. regulators have approved Ackman’s unique SPAC structure, known as “SPARC” (special purpose acquisition rights company), which involves informing investors of a potential SPAC acquisition before seeking their funds.
For the full original article on CNBC, please click here: https://www.cnbc.com/2023/10/02/bill-ackman-says-the-economy-is-starting-to-slow-and-the-fed-is-likely-done-hiking.html
