They say professional investors have strong opinions, loosely held. Well, that certainly seems to be the case with their commentary. 🙃
Less than three months after declaring he was betting against U.S. Treasuries, Bill Ackman was back on X, revealing that he is now out of the trade. 💸
We covered our bond short.
— Bill Ackman (@BillAckman) October 23, 2023
Replying to his post above, he explained his flip-flop by saying that “there is too much risk in the world to remain short bonds at current long-term rates.” and “The economy is slowing faster than recent data suggests.”
At surface level, this seems to be a prudent idea. After all, when he initially put the trade on in August, the Israel-Hamas war was not a risk anyone was actively anticipating. However, the timeframe of this move doesn’t make a lot of sense to investors. 🤔
When he initially outlined his bearish thesis, he focused on longer-term structural factors happening globally that would keep inflation persistently high. He cited de-globalization, higher defense costs, the energy transition, growing government entitlements, and the historically tight labor market.
And all of those factors still exist today. Not much has changed with the economy or the Fed’s forecast, and if anything, they’re expected to keep rates higher for longer than they anticipated this summer.
Maybe it’s because bonds moved very quickly to the downside since August, giving him pause about near-term sentiment and positioning in the market. That would certainly be fair. But as usual, we mere mortals are left with a concerning lack of clarity on what these “masters of the universe” actually think about the market. 🤷
Nevertheless, another Bill was also in the headlines today. PIMCO’s Bill Gross took to X to express his view that the U.S. economy is likely headed for a recession by the end of the year, stating:
Regional bank carnage and recent rise in auto delinquencies to long-term historical highs indicate U.S. economy slowing significantly.
Recession in 4th quarter.
Best investments are equity arbs (CPRI and SGEN. VMW a long shot). I’m seriously considering regional banks again. 1/2— Bill Gross (@real_bill_gross) October 23, 2023
With the Atlanta Fed’s GDP tracker indicating a third-quarter expansion of roughly 5.4% and economists looking for a 4.5% annualized growth rate, a fourth-quarter downturn would be a quick turnaround. But apparently, Gross has enough conviction to post about it publicly, also sharing how he intends to play it.
Overall, he’s betting that the Treasury curve will continue to steepen and investing in some merger-arbitrage plays. He’s also considering getting long regional bank stocks as they remain in significant drawdowns this year and have continued selling off as earnings season unfolds. 🏦
What people say and what they do in their portfolios don’t always align, and public statements are almost always self-serving. Nonetheless, when big-name investors tout their ideas publicly, there’s generally fanfare around them for a bit. For now, investors will be watching Treasury bonds as we wait with bated breath for the Bills to update their theses. 😬