Bill Ackman: why I've bet $100 billion on this event

[Music] hello with me today i have star investor bill ackman ceo of ftse 100 company pershing square holdings hi bill thanks for joining me today sam good to uh good to see you bill last time we spoke you highlighted inflation as a potential black swan type risk and you'd put on a very large bet that would pay out if inflation the inflation spike came to pass well inflation is indeed rising quickly how's that bet looking sure so it was a very large it was it was actually one of our smallest bets in that it was about one and a half percent of capital or at the time we made the investment maybe less one a quarter percent of capital um but it's structured in a very asymmetric way it's we purchased an option a so-called swaption where we bet that rates would rise uh for a whole bunch of reasons among them the expectation of inflation um and it's playing out the way we expected and that investment today is worth about approaching three times the price we paid for it um but it gets really really valuable if there's a meaningful move in rates you know over the next you know call it year or so um and we think that's going to happen and that's partly why we you know issued a bunch of debt recently um but it's also why we have that investment so we like these sort of asymmetric you know it was really a hedge and if you have a hedge that can also pay off when your underlying investments do well that's the ideal world so we built the notional size of the positions quite large it's in the tens of billions so that that kind of speaks to the potential for profit um it's a it's a north of 100 billion dollar notional investment and if you know rates move the value of the underlying instrument moves a few percent we can make a few billion dollars that's how to think about it so what's your outlook on race is this this is i mean it's clearly a bet you say you're going to run what's what's the outlook for rates we think rates are going higher i think i think the only thing keeping u.s rates at what seemed like certainly low levels today is a technical factor which is the federal reserve's very aggressive purchases 120 billion a month of bonds which is going to change and uh it's it's a bit like buying stocks when there's a huge tailwind of the issuer buying back a big percentage of shares every day you know it's hard for a stock to go down in that environment the same thing is true for bonds now it's a very different environment when you imagine a company that's issuing stock every day right that's effectively uh you know as the as the fed begins to taper we do think rates are going to move higher the fact that they've been able to move a lot in the last month uh without the taper having started yet i think is sort of indicative of what could happen with the federal reserve and you know every day there's an announcement about uh a foreign government central bank raising rates thinking about raising rates or a bad inflation number boe you know being discussed you know uh just uh it's a worldwide phenomenon it's a risk to every business and that's one of the reasons why we like to own these businesses that have pricing power you know one of the beautiful things about universal is music is actually too cheap today and the artists are legitimately upset about it but spotify is kind of giving away the music service along with amazon and apple um people spend less today you get 50 60 million songs on your iphone and you're paying a few dollars a month in the u.s people are spending about 55 less than what they did 20 years ago on music on a real dollar basis and so there's a lot of head room opportunity to increase price um and the same thing is true for most of the businesses so we think we can keep pace with inflation so clearly i mean inflation a much sharper rise in the cost of living is is on the cards i mean is that your primary concern uh as an investor now or is something else worrying you is it you know bubbling away in the background sure i would say that's the principal financial concern i have i think the other concern all of us have is just general geopolitical and political you know unrest divisiveness you know the dysfunction you know the debt limit you know we're gonna have another little debt limit in december you know the imagine if we had a uh you know government and a congress and senate that that functioned commercially and where people work together to get the best outcome that would be really really bullish we're at the opposite side of that now unfortunately great bill ackman um ceo of pershing square holdings thank you very much for joining me today sure thank you lee appreciate it you

Channel: interactive investor

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Length: 5min 27sec (327 seconds)

Published: Sun Oct 24 2021