Billionaire investor Bill Ackman says sustained inflation could be a ‘black swan’ risk for the stock market

Bill Ackman
Bill Ackman.

Bill Ackman said in an interview with Interactive Investor published Thursday that sustained inflation could cause an unexpected tailspin in the stock market.

“I think one of the ‘black swan’-type risks for markets is a real spike in inflation that’s not just a three-month spike, that’s more sustained,” Ackman said. “Also, meaningfully higher interest rates, which I think will affect the discount rates that people use to value companies. And I think those could be countervailing stock-market forces.”

A “black swan” event is a rare and unpredictable event that could have severe consequences.

The Pershing Square Capital Management founder said that the trillions of dollars in stimulus from COVID-19 relief bills and President Joe Biden’s infrastructure proposal, historically low interest rates, and “benign policy” from the Federal Reserve would set the US up for “explosive GDP recovery and probably inflation.”

Ackman said he thought that with the pace of vaccinations, the US would be close to full employment and near all-time low unemployment rates at the start of 2022 – factors for the Fed to change policy.

“I think you could see certainly expectations change as soon as the next few months about how accommodative the Federal Reserve will be,” Ackman added.

Read more: Legendary investor Jeremy Grantham called the dot-com bubble and the 2008 financial crisis. He told us how 4 indicators had lined up for what could be ‘the biggest loss of perceived value from assets that we have ever seen.’

More investors have questioned whether inflationary pressures from the economic recovery will be temporary or have a lasting effect on markets. The Fed has signaled that it will keep its accommodative policy stance, which has long driven gains in stocks. The Fed’s chairman, Jerome Powell, has also emphasized that any rise in inflation would be transitory.

But many on Wall Street have predicted that the Fed will need to change its hand sooner than expected and that it will spook markets. The Wharton professor Jeremy Siegel told CNBC on Friday that the Fed would change its policy stance in 2021 and that it would cause a “day of reckoning” in the stock market.

Ackman recommended investors own businesses with pricing power to combat inflation.

“I think inflation is going to be real, and you’re going to see wage inflation. I mean, everywhere there are ‘help wanted’ signs. It’s very hard to hire people to fill its jobs, particularly with a stimulus package which includes extra unemployment benefits,” the investor said. “So it’s a lot of pressure on wages I think, which I think ultimately is a good thing but could have, again, depending on the nature of the business, could have a negative impact.”

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Billionaire investor Bill Ackman warns that sustained inflation could be a ‘black swan’ risk for the stock market

Bill Ackman
  • Hedge-fund billionaire Bill Ackman said a sustained rise in inflation could be a “black swan” event to markets.
  • He detailed his take in a recent interview with Interactive Investor.
  • Ackman said the US could hit full employment by the end of the year, forcing the Fed to change its policy stance.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Bill Ackman warned that sustained inflation could cause an unexpected tailspin in the stock market in an interview with Interactive Investor published Thursday.

“I think one of the ‘black swan’ type risks for markets is a real spike in inflation that’s not just a three-month spike, that’s more sustained,” Ackman said. “Also, meaningfully higher interest rates, which I think will affect the discount rates that people use to value companies, and I think those could be countervailing stock market forces.”

A “black swan” event is a rare and unpredictable event that potentially has severe consequences.

The Pershing Square Capital Management founder said the trillions of dollars of stimulus from COVID-19 relief bills and Biden’s infrastructure package, historically low interest rates, and “benign policy” from the Federal Reserve is setting the US up for “explosive GDP recovery and probably inflation.”

Ackman said that with the pace of vaccinations in the US, the country will be close to full employment and near all-time low unemployment rates at the start of 2022. Those factors are the triggers for the Federal Reserve to change policy.

“I think you could see certainly expectations change as soon as the next few months, about how accommodative the Federal Reserve will be,” Ackman added.

Ackman’s interview comes as more investors begin to question whether inflationary pressures from the economic recovery will be temporary or have a lasting effect on markets. The Federal Reserve has signaled it will keep its accommodative policy stance, which has long driven gains in stocks, in place for much longer. Chair Powell has also emphasized that any rise in inflation will be transitory.

But many on Wall Street are predicting the Fed will need to change its hand sooner than expected, and that will spook markets. On Friday, Wharton Professor Jeremy Siegel told CNBC the Federal Reserve will change its policy stance at some point in 2021, and that will cause a “day of reckoning” in the stock market.

Ackman recommended investors own businesses with pricing power to combat inflation.

“I think inflation is going to be real, and you’re going to see wage inflation. I mean, everywhere there are ‘Help Wanted’ signs, it’s very hard to hire people to fill its jobs, particularly with a stimulus package which includes extra unemployment benefits,” said the investor. “So it’s a lot of pressure on wages which I think ultimately is a good thing but could have, again, depending on the nature of the business, could have a negative impact”

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Carl Icahn sells the remaining portion of his Herbalife stake, ending the saga that fueled his long-standing feud with Bill Ackman

Carl Icahn 2
  • Billionaire activist investor Carl Icahn sold his remaining stake in Herbalife, SEC filings show.
  • The nutritional shake company is at the center of his years-long feud with fellow billionaire Bill Ackman.
  • Icahn was an activist investor in the company but said the company no longer needs him.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Billionaire investor Carl Icahn sold his final remaining stake in Herbalife, putting a close to the saga that fueled his long-standing feud with Bill Ackman.

SEC filings from Thursday show that Icahn now holds 0% of the multi-level-marketing nutritional shake seller. In January, the activist investor reduced his share of the company to about 6% from 16% and sold $600 million of stock, saying that the company no longer needed his activism.

Icahn told CNBC’s Scott Wapner on Thursday: “I think this is an example of activism working very well. It was certainly an interesting ride fighting off bear raids as well as aiding the company in their numerous negotiations with the government. But all’s well that ends well and we wish the company the best of luck in the future.”

The nutritional supplement company is at the center of Icahn’s years-long feud with fellow billionaire investor Bill Ackman. Ackman had a $1 billion short position in Herbalife, and publicly disclosed that he believed the company was a pyramid scheme. Icahn became an activist investor in the company, and their arguments over Herbalife came to a head on live television.

In a CNBC interview in 2013, Icahn called Ackman a “liar,” and said to the investor: “I wouldn’t invest with you if you were the last man on Earth.” Ackman slammed back, saying “This is not a guy who keeps his word. This is a guy who takes advantage of little people.”

Ackman eventually exited his short position in Herbalife, and the Wall Street Journal estimates he likely lost hundreds of millions of dollars. Meanwhile, Reuters reported that Icahn started purchasing Herbalife in 2013 at an average of $21.03.

Shares of Herbalife jumped as much as 4.8% to $49.76 a share on Thursday.

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Billionaire investor Bill Ackman is eyeing a second SPAC deal even though he will miss his own Q1 deadline to find a first target

Bill Ackman
Bill Ackman.

  • Pershing Square chief Bill Ackman is already planning a second SPAC, but hasn’t yet found a first target.
  • Airbnb, Stripe, and Bloomberg LP were previously said to be among his blank-check firm’s first targets.
  • Ackman said he believes his SPAC will be an important contributor to his hedge fund’s performance.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Hedge fund billionaire Bill Ackman is already planning a second blank-check company, although he expects to miss his own first-quarter deadline to find a first target.

The legendary investor had hoped his special purpose acquisition company (SPAC) would find a target by the end of the first quarter, but now admits this might not happen. Prior targets on the list of his Pershing Square Tontine Holdings SPAC included Airbnb, Stripe, and Bloomberg LP, according to Reuters.

“While we previously believed that we would be able to announce a potential transaction by the end of this quarter, we will not be in a position to do so,” Ackman said in a letter to investors on Monday. “We do not intend to make any announcements about PSTH’s transaction progress until we enter into a definitive agreement.”

Ackman said he believes his SPAC will be an important contributor to the hedge fund’s performance and he will likely launch a second one after completing a first merger. Investors in his first SPAC should have the right to invest in the second one “without paying a premium to its cash-in-trust value,” he wrote in the letter.

Ackman’s PSTH was the highest-profile SPAC among hedge funds in 2020, when SPACs raised $83 billion across 248 IPOs, smashing the previous record of $13.6 billion, according to SPACInsider.com. His SPAC raised a record-breaking $4 billion via proceeds from investors in July last year, along with an added $1 billion commitment from Pershing Square.

While he has not told investors which companies he was looking to take over, a previous filing stated he is drawn to “high-quality, venture-backed businesses” that could be classified as “mature unicorns.” Unicorns are privately-held startups with a valuation of more than $1 billion.

The SPAC has until July 21 next year to sign a letter of intent and six months after that to close a signed deal, according to Bloomberg.

Shares in Pershing Square Tontine fell 1.3% in pre-market trading on Tuesday.

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SPACs are booming ‘at the expense of retail investors’, and regulators should take these 5 steps to fix the market, think tanks say

SPACs and hedge funds 4x3
  • In February, two financial reform think tanks sent a letter to Congress detailing concerns over the SPAC boom.
  • The letter said the soaring market is “fueled by conflicts of interest and compensation to corporate insiders at the expense of retail investors.”
  • It offered five recommendations for Congress and financial regulators “to better protect retail investors.”
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As SPAC mania continues in 2021, drawing big name investors and pop culture icons, there are some who believe retail investors trying to cash in on the craze are getting a raw deal.

In February, Americans for Financial Reform and the Consumer Federation of America sent a letter to the House Financial Services Committee detailing concerns over the boom among special purpose acquisition companies.

The letter, addressed to Chairwoman Maxine Waters, said that the boom in SPACs is “fueled by conflicts of interest and compensation to corporate insiders at the expense of retail investors.”

It also suggested an attempt by sponsors and their targets “to end-run longstanding rules designed to promote fair and efficient markets.” 

SPACs have been around for decades, yet they have rocketed to prominence last year and in 2021, touted as a faster and cheaper alternative for companies to go public compared to the traditional IPO. 

In the first two months of 2021 alone, 175 SPACs have gone public according to data compiled by Goldman Sachs – roughly five deals per trading day. If that pace continues, the investment bank estimates that this year’s offerings will exceed the total number of SPACS in 2020 by the end of March.

The letter, authored by Andrew Park of Americans for Financial Reform and Renee M. Jones of Boston College Law School, says SPACs should be reigned in.

The organizations offer five recommendations for Congress and financial regulators “to better protect retail investors.”

1. Modernize the definition of “blank check company”

Congress should look again at legislation that allowed the SEC to regulate blank-check firms, and the term should not be limited to companies that issue “penny stock” offerings. “Blank check companies,” using larger vehicles, can now evade the restrictions Congress adopted to protect investors from “misleading information, conflicts of interest, and fraud.” 

“Making an investment vehicle larger and attracting larger investments does not cure the problems inherent in marketing, selling, and trading in blank check stock,” the letter states. 

2. Tamp down pre-merger hype 

SPAC sponsors, target companies, and advisors are protected from liability for overly optimistic projections. That is in contrast to traditional IPOs where unfounded financial projections are restricted. Closing this loophole will level the playing field, the letter said, especially since SPAC sponsors “often boldly claim to investors they will be able to generate billions in revenue in the near future.”

3. Ensure appropriate underwriter liability

The liability should also extend to underwriters and financial advisors during the merger phase. As SPAC underwriters receive more than half of their underwriting fees at the completion of the merger, the letter suggested that the underwriters should be the same for the entire SPAC offering.

Financial advisors should also be deemed underwriters, the letter said. These changes will level the playing field between SPACs and traditional IPOs.

4. Enhanced disclosures at SPAC offering and merger stages.

SPAC merger disclosures should explicitly include the amount of cash expected to be held by the SPAC immediately prior to the merger, the letter said. This includes side payments, agreements to pay sponsors, SPAC investors, and PIPE investors.

The letter that this information often has to be pieced together from various documents.

5. Study the risks and results of SPAC mania 

The letter recommends the Securities and Exchange Commission collect data on SPACs and to produce a report evaluating average performance. The agency should also investigate  the categories of investors that “typically bear the brunt of SPACs’ post-merger losses.”

The letter said many of these investors are retail investors who “are often drawn to SPAC investments by the publicity and hype” and “are likely unaware of the complexity of fee arrangements or the expected dilution that will eventually erode the value of their investments.” The letter suggested apps such as Robinhood played a part in all this hype.

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‘This seems like a genocide’: Billionaire investor Bill Ackman slams delays in getting the COVID vaccine to the elderly

Bill Ackman
  • Billionaire investor Bill Ackman tweeted on Tuesday, slamming logistical failures in the US vaccine rollout. 
  • “If Elon Musk can deliver 500k Teslas and Jeff Bezos can provide same-hour delivery, we can vaccinate every American” he tweeted.
  • As of January 4, the US has vaccinated fewer than five million people.
  • Visit Business Insider’s homepage for more stories.

Billionaire investor Bill Ackman tweeted criticisms of the US rollout of the COVID-19 vaccines. He called it a “failure of logistics and mismanagement during the transition” in a series of tweets on January 5.

Ackman, CEO of the hedge fund Pershing Square, criticized the prolonged vaccine rollout as cases continue to increase. The pandemic continues to break records, with average daily cases surpassing 275,000, and more than 350,000 people in the US have now died of COVID-19, according to The COVID Tracking Project.

A record 3900 people died on December 30. Vaccinations so far have been chaotic, as health departments lack staff or expertise to administer the vaccine and get doses to the right places and as of January 4 fewer than 5 million people in the US had been vaccinated.

In a follow-up tweet, Ackman said that there was no logistical excuse for botching the vaccinations.

“If Elon Musk can deliver 500k Teslas and Jeff Bezos can provide same-hour delivery, we can vaccinate every American. The time is now!” he wrote, referring to the CEOs of Tesla and Amazon.

 

In a follow-up tweet, Ackman said the mismanagement of the vaccine “seems like genocide” of the elderly.

“We are killing the Greatest Generation … If the virus killed mostly children rather than the aged, would we sit back and allow this to happen?” he wrote, alluding to ageism.

Pershing Square did not respond to Business Insider’s request for further comment on Ackman’s tweets.

Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, told ABC News’ Martha Raddatz on Sunday that vaccinations could speed up soon. He said that the US could be vaccinating one million people each day.

Ackman’s Pershing Square fund posted a 70% return in 2020, much of which was realized from the firm’s anticipation of the pandemic’s devastating effects on business early in the year through credit-default swaps.

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