Bill Ackman Worried That Inflation Is a Black Swan Risk
But he does also see some good news ahead.
Billionaire investor Bill Ackman is concerned that we may see renewed inflation in the near future. This is because of the all money currently being pumped into the U.S. economy through the $1.9 trillion Biden stimulus deal, coupled with very low interest rates which have been in place for a long time. Bill Ackman made the comments in an interview with Interactive Investor
Bill Ackman said, “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. 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.”
So what is a Black Swan anyway?
Well the term was coined by Nassim Nicholas Taleb who published a book on the subject in 2007. The black swan theory is a metaphor for any event which comes as a surprise and has a major effect. Because it came as such a surprise, people will often inappropriately rationalize it after the fact with the benefit of hindsight. The term is based on an ancient saying that presumed black swans did not exist – a saying that became reinterpreted to teach a different lesson after the first European encounter with them.
So basically when something bad happens that the people who should have known better should have seen coming but believed could never happen, the same said people try to find ways to explain how they got it so wrong.
Many people would agree with his sentiment. Economists will probably tell you that an economy cannot sustain high deficits and low interest rates for long. But is this really the case?
The same thing was said more than 10 years ago when the country was recovering from the whole sub-prime mortgage debacle. But this does not take into consideration the fact that the spending and low interest rates are being used to stave off an outright depression. This type of fiscal and economic policy is what was lacking after the 1929 stock market crash. The administration of President Hoover stood by and watched as prices plummeted, which led to factories closing, jobs being lost, and a downward spiral of more job losses causing less consumption, causing more job losses, etc.
The high spending might not cause inflation if it is being used as a plug in the dyke to prevent deflation – the plummeting of demand and prices as described above causing an economic crash.
— interactive investor (ii) (@ii_couk) May 8, 2021
Bill Ackman had some other things to say too.
On coming out of the Covid lookdowns, he compared the streets filling up again to animals coming out of their dens. “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,” Ackman said. “So I think you see a lot of – I think the animal spirit, the animals are coming out of their dens, so to speak.”
On the recent signs of economic recovery, he said it all depends on what happens with vaccinations. “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,“ explained Ackman. “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.”
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