Bill Ackman: THE serious threat to investors in 2021

Superstar investor Bill Ackman tells us how he thinks 2021 has gone so far and what the most important factor for investors will be for the rest of the year. He also discusses a major issue he believes investors must take seriously.

Lee Wild, head of equity strategy, interactive investor: Hello. Today I have with me Bill Ackman, one of the world’s best-known investors and the man behind hedge fund, Pershing Square Holdings (LSE:PSH), now a FTSE 100 company. Now hello, Bill, thanks for joining me.

Bill Ackman, founder and chief executive Pershing Square Holdings: Sure, thanks for having me.

Lee Wild: When we last spoke before Christmas you talked about animal spirits being unleashed as societies emerged from lockdowns. Now we’re seeing that in the UK now, but is the route out of the pandemic and economic progress living up to your expectations?

Bill Ackman: Yes. You know, I think the US is in a similar place or about to be in a similar place. I mean, I’m in New York City and the first day I’m in my office actually in quite some time, and the streets are crowded, there’s traffic, there are people walking around, there are people eating outside. So I think you see a lot of – I think the animal spirit, the animals are coming out of their dens, so to speak.

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Lee Wild: In terms of the start to 2021, has the investment outlook for the rest of this year changed following developments in Q1, particularly Joe Biden’s first 100 days?

Bill Ackman: I think the most important factor this year is the pace of vaccination. If you look at a country by country basis you see India in a very disastrous, horrible place, hopefully they can recover from that, and the UK, the US, Israel, you know, friends sent me some photos and videos on what’s going on in Israel and its life is back to normal. I just think you’re going to see that on a rolling basis throughout the world, so, so to speak, first world, first movers are big beneficiaries.

Lee Wild: What are your thoughts on the stimulus package and some of Joe Biden’s other initiatives? Clearly they’re positives, are they enough?

Bill Ackman: I think I would say people are generally very positive on progress, you know, of performance on vaccinations, very significant stimulus package, past cheques being sent out, some important steps on environmental, you know, rejoining Paris Accords, US starting to take a part in these kind of important discussions. I think from a markets perspective, I think the biggest fear really relates to tax policy, there have been some – you know, the proposal is near doubling or more than doubling in capital gains taxes, and a very large infrastructure plan approaching three trillion. 

I think a bit of fear, clearly in the bond market, about inflation, about the impact of all this stimulus hitting the economy, along with – you know, if you think about it you have a combination of vaccinations, giving people more confidence. You have this nearly two trillion dollars of stimulus, you have the infrastructure stimulus, and you have incredibly low interest rates and a very, I would say, benign policy from the US central bank, right.  So it’s really setting up for explosive GDP recovery and probably inflation

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Lee Wild: I was going to ask, so you do buy into that inflation argument, we saw this spike in T-Bills a while back, so that is a real concern for you?

Bill Ackman: It is. In fact, actually in December/January we put on a very large notional, if you will, short, you know, the shorter-term part of the Treasury curve as well as kind of the 10-year Treasury curve. Part of my day job, I think about what we do as finding the greatest business in the world that we can ideally own forever, and then hedging kind of the ‘black swan’ type risks, and I think one of the ‘black swan’ type risk for markets is a real spike in inflation that’s not just a three-month spike, that’s more sustained. 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 countervailingstock market forces.

Lee Wild: Are we talking a 2021 problem here, or are we spilling over into ’22 and ’23?

Bill Ackman: Look, I think we’re going to be back to full employment much faster than people expect. You know, if you look at the categories of employment or people who have lost jobs, it’s been actually education, that’s one of the big categories. Well all those jobs are going to come back pretty much immediately, or September. Then hospitality, you know, the hotel industry, the restaurant industry, theatre, I think again those are going to come back very, very quickly, I think by the later part of the year. So I think we’ll be back, by the turn of the calendar year, to something close to full employment and near all-time low unemployment rates, and those are the triggers for the Federal Reserve changing policy. So I think you could see certainly expectations change as soon as the next few months, about how accommodative the Federal Reserve will be, I think that could be a stock market factor.

Lee Wild:  So it’s not something that private investors can dismiss, they have to take this issue seriously?

Bill Ackman:  Yeah, and you want to own businesses with pricing power, 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. 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.

Lee Wild: Bill Ackman at Pershing Square Holdings, thanks very much for joining me today.

Bill Ackman: Thank you so much, appreciate it.