Hedge fund manager Bill Ackman is betting that a surprise interest-rate rise would pop the speculative stock market bubble and he’s hoping he’ll rake in billions more this year like he did in 2020 from a series of trades to protect against a stock market sell-off.
The famous U.S. fund manager made $2.6 billion for his funds in 2020, including his New York-based Pershing Square investment trust, Telegraph reported. He was the ninth-highest-performing fund manager in the U.S. in 2020, according to Bloomberg.
“We will see a spike in inflation as early as the middle of the year,” Ackman predicted, according to the Telegraph. “It is already starting to happen. At some point, if rates move enough then it becomes a market risk event.”
He said his funds had already bought “instruments that pay off in a large way in the event of a surprising move in rates”.
Stock markets rallied in 2020, largely on the back of the Federal Reserve’s easing monetary policies that started in March after the onset of the coronavirus pandemic. Fed boss Jerome Powell indicated in June that they were “not even thinking about thinking about raising rates.”
Ackman, whose investment trust was promoted to the FTSE 100 last year, said the U.S. government’s huge $1.8 trillion stimulus package was sowing the seeds for a surge in inflationary pressures, which could lead to a surprise rate rise.
Higher inflation jitters are already slipping into the stock market and have hit technology and high-growth companies as investors price in lower future profits due to high inflation and interest rates.
Ackman said a continued rise in inflation would spell more pain for investors in these companies.
“In order to justify the high price of high-flying tech companies, you need to have enormous continued growth and eventually have them generate profits,” Ackman said. “The current level of interest rates mean that investors are willing to wait a long time for companies to generate lots of money. A move (higher) in interest rates is a big threat to growth companies.”
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