- Bill Ackman warned the banking crisis might hammer the US economy if it isn’t resolved quickly.
- The billionaire investor cautioned the Fed against hiking interest rates before order is restored.
- Ackman touched on inflation, blockchain, Elon Musk, and Jamie Dimon’s presidential potential.
Silicon Valley Bank’s just suffered the worst financial meltdown in 15 years. Here’s what you should know, and what A-list market minds are saying.
First Republic Bank stock plunges 60% on contagion fears
Bill Ackman has raised the alarm on the banking crisis, warning it could ravage the US economy if allowed to continue.
The billionaire investor and Pershing Square chief, during an episode of the 20VC podcast uploaded Monday, cautioned the Federal Reserve against forging ahead with further interest-rate hikes before the financial system stabilizes.
Ackman predicted elevated inflation for years to come, and touted blockchain’s disruptive potential. He also called for Elon Musk’s loans against his Tesla stock to be taxed, and suggested JPMorgan CEO Jamie Dimon would make an excellent US president.
Here are Ackman’s 10 best quotes from the interview, lightly edited for length and clarity:
1. “I had a very early view on the economic implications of COVID that enabled us to make a fortune hedging it. I had a very similar view about interest rates, and we were completely ahead of the curve. The mistake was not making that a bigger bet; we should have made $10 billion on hedging interest-rate risk, instead we made $2.8 billion because we were a little timid. We didn’t put enough capital behind our confidence.”
2. “I think unfortunately the bank run is continuing. If you look at the deposit inflows at the big banks, if you talk to anyone at JPMorgan opening accounts, they’re working literally around the clock to take in all the capital that’s flowing in. That’s not good for our banking system.”
3. “Silicon Valley Bank made one of the most basic mistakes a bank could make. It violated all the basic rules. This is one of the simplest high-level things that you should check about a bank, and somehow that was ignored by the regulators.” (Ackman was referring to SVB’s failure to hedge against interest rates rising.)
4. “The government has still not given people assurance that every deposit is safe. If that doesn’t happen, all these deposits drain out of these regional banks, they’re going to stop lending, and the economy is going to come to a halt. I’d be very wary of raising rates until we’ve solved this regional bank problem. We can’t have another bank closure. One more and it’s going to get messy.”
5. “A lot of the construction lending and real estate lending and small business lending is done by these smaller banks. Commercial real estate is a major part of our economy. If these banks lose all their capital and deposits, that will cause a meaningful slowdown.”
6. “Cranking up rates puts pressure on the system and cracks emerge. We’ve seen glass breaking. I think he’s got to be very, very thoughtful about whether we raise rates here or whether we pause.” (Ackman was discussing whether Fed Chair Jerome Powell should continue hiking interest rates to curb inflation.)
7. “You’re going to see persistent levels of 3% to 4% inflation for the foreseeable future. That’s certainly being missed, based on the pricing of long-term bonds. The government is borrowing money for 30 years at 3.6% — that can’t make sense in a world where inflation’s 3.5%.”
8. “There are businesses that are guaranteed to be disrupted by blockchain. There are old-fashioned, old-mold businesses that everyone hates because they’re monopolists, and you can disrupt them with blockchain technology. I would be short those companies.”
9. “If you’re Elon Musk — I’m not a believer in wealth taxes. But if you’re borrowing $5 billion against your Tesla stock, and you’ve borrowed more than your cost basis in the Tesla stock, I think the distribution from that kind of borrowing should be taxable. Because it’s really tantamount to a sale. You’re getting back more than the money that you invested.” (Ackman said he believed the “Elon Musks of the world” would support a tax of that kind.)
10. “My favorite version of events is Jamie Dimon, actually. Believe it or not, a banker. I’d like a globally recognized, respected, talented business builder that understands the economy, that understands geopolitics, that has relationships with business leaders globally. I’d like a better version of Trump, a better business leader to run for office, and I think they could absolutely get the Democratic nomination.” (Ackman was discussing who he would like to see become the next US president.)