After $200 Million Bond Short Payday, Ackman Bets On Fed Cuts

Two months ago, I said Bill Ackman probably cared a lot more about the money he stood to make from his bombastic long bond short than he did about the investment case behind that short.

You might say “Well, of course. He’s a hedge fund manager, after all.” But Bill’s more than a hedge fund manager and the long bond isn’t just any security.

Ackman moonlights as an essayist now. His publisher is Elon Musk. Bill takes full advantage of (you might even say he abuses) the expanded character limit on the social media platform formerly known as Twitter in the service of weighing in on anything and everything. He has no regard for the vertical space constraints of a Twitter time line.

Over the summer, he delivered a novella-length explanation of the rationale behind shorting 30-year US government debt. Bill made a lot of important points, and some of them were quasi-existential. “There is no sign of fiscal discipline by either party or by the presumptive presidential nominee,” he despaired. “The peace dividend is no more.” Heavy stuff!

On September 22, I gently suggested that for all the (melo)dramatic editorializing, Ackman really just cared about the short. The rest of it — dangerous fiscal profligacy, epochal macro shifts, the return of labor as an economic actor with clout, energy insecurity and on and on — was interesting to Bill, but nobody should kid themselves, I said. He just wanted the bag.

A month (almost to the day) later, Bill covered his short. Exactly nothing had changed in terms of the factors Ackman cited for the position. What had changed, though, was the PnL. He was up $200 million, according to various reports. So, Ackman cashed out. There was no lengthy essay this time. “There is too much risk in the world,” he said, in a short tweet. “The economy is slowing faster than recent data suggests.” Translation: Cha-ching! Thanks for playing!

Fast forward another month and Ackman is betting on imminent rate cuts, citing… well, citing a lot of wink-wink rhetoric from Fed officials regarding the supposed necessity of lowering rates as inflation recedes in order to avoid passive tightening through the real policy rate channel. (In excerpts from an interview published by Bloomberg, Ackman didn’t specifically mention comments from Fedspeakers, but a number of officials have alluded to insurance cuts predicated on preventing real rates from rising mechanically.)

“What’s happening is the real rate of interest, which is what impacts the economy, keeps increasing as inflation declines,” Ackman told David Rubenstein, in a new installment of the hit Bloomberg series Rich Person-To-Rich Person Conversations. I’m just joking. It’s actually called Peer-to-Peer Conversations, and everyone (or nearly everyone) who’s invited just happens to be rich. Implicit is the notion that worth is synonymous with net worth — you’re only Rubenstein’s “peer” if you’re rich. (On the eve of FTX’s collapse, Rubenstein interviewed “peer” Sam Bankman-Fried. Feel free to laugh heartily at David’s expense, because I can assure you that billionaires like him are laughing at your expense all day, every day in one context or another.)

There’s nothing complex about Ackman’s rate cut bet. “I think there’s a real risk of a hard landing if the Fed doesn’t start cutting rates pretty soon,” he told Rubenstein.

Again: Fed officials have repeatedly alluded to insurance cuts as inflation falls in the interest of preventing the real policy rate from rising. Chris Waller moved markets on Tuesday by suggesting that such cuts could commence in “three, four or five months.” Ackman’s trades may well be in-the-money already.

So, just to recap, in August and September, Ackman was convinced that long-end bond yields were headed higher. The US economy, Bill said, “is outperforming expectations.” Inflation, he went on, “is not going back to 2% no matter how many times Chairman Powell reiterates it as his target.”

Now, a mere 60 days later, there’s a “real risk” that the very same economy is headed off a cliff unless the very same Jerome Powell starts cutting rates “soon.”

Stepping back, Main Street is supposed to believe that people like Ackman serve a purpose in the economy. That somehow, we all benefit when billionaires make hundreds of millions of dollars wagering one month on a hot economy and elevated inflation and the next month on a economic downturn and panicked rate cuts.

Call me crazy, but I’m not sure anyone benefits from that. It’s possible — and I’m just tossing this out there — that Ackman and his “peer” group serve no purpose whatsoever and that to the extent we have no choice but to suffer their bulls–t, we should tax their gambling profits at 90%.

And please, you can all spare me the fake outrage: Ackman and his ilk inhabit a different reality than even the richest among you. You’re a lot closer to Main Street than you are to Bill. Maybe he’d buy you a burrito if you ever run into him at Chipotle, but fast-casual is the only experience you’re ever going to share with Ackman. Similarly, you’re never going to be invited to any “peer-to-peer” conversations with Rubenstein.


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5 thoughts on “After $200 Million Bond Short Payday, Ackman Bets On Fed Cuts

  1. I personally didn’t even think the point is arguable – of course no one benefits (other than Bill) when he makes such a sum in such a short period of time with no effort.

    But I guess capitalism dictates that whatever is earned by playing within the rules is fair game, not necessarily that it is beneficial to society. Or is it supposed to be?

  2. Hmmm…”should tax their gambling profits at 90%.”? Maybe, or perhaps consider other actions appropriate to what is basically Masters of the Universe scale version of the old Pump and Dump (played both ways, short and now long, no less)?

    1. I concur, if capital has incentives for short term gains then we’ll all suffer whiplash a-la-1920s (and the enjoyable Robber Baron period).
      It’s less “fun” to treat the tools of commerce as foundational to civilization but it’s a contract with society that stability (via currency and the economy) prevents revolution and direct takings.

  3. You have published two articles today that have a non-academic or journalistic tone. Although you and Musk possess distinct personalities, both of you have a profound concern for the suffering that Earth is undergoing.

    1. I think I should make something clear: I’m not a fan of Elon Musk. The guy has problems. Plainly. He has the mentality of a 12-year-old on mature days. On some days, his behavior is that of a small child. I wish him all the success in the world, but if I accidentally ended up in the same room with the man, I’d politely find a door.

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