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Bill Ackman Says Bond Market is Misreading the Fed, Inflation is Out of Control and Fed May Ramp Up Hawkish Commentary

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© Reuters. Bill Ackman Says Bond Market is Misreading the Fed, Inflation is Out of Control and Fed May Ramp Up Hawkish Commentary

By Davit Kirakosyan

Bill Ackman, a billionaire investor and the founder and CEO of hedge fund management company Pershing Square Capital Management, tweeted today that the bond market is misreading the U.S. Fed.

According to Ackman, this is likely due to Fed chair Jerome Powell’s communication style and some wishful thinking on the part of investors. Ackman added that inflation is out of control and inflationary expectations have become unanchored.

“The Fed has finally come to this realization and has decided to act, and is playing catch up,” Ackman commented. “However, Powell does not come across as someone who wants to go to battle against inflation. He seems uncomfortable and reluctant, almost apologetic, about raising rates.”

Ackman added that each time Powell speaks unscripted in Q&A, the market interprets his statements dovishly. To fix his message, the Fed governors thereafter go out to clarify.

“To wit, Kashkari, a historic dove, on 6/17 unveiled his dot plot which shows FF at 3.9% by YE and 4.4% by YE’23. He says 75 bps in July and 50 bps thereafter ‘until inflation is well on its way to 2%.’ Then on 6/18 Waller said he supports 75 bps in July and said the Fed is ‘all in’ on fighting inflation. And then today Bowman, who speaks rarely but carries great import in light of the rarity of her public statements, said ‘I expect that an additional rate increase of 75 basis points will be appropriate at our next meeting as well as increases of at least 50 basis points in the next few subsequent meetings…’ And Bostick last week said the Fed would do ‘whatever it takes’ to bring inflation back to 2%. Despite the above coordinated commentary, the bond market has ignored these statements leading to a massive decline in short term rates since the Fed meeting.”

Ackman predicts the Fed and Powell are serious about inflation and Powell does not want to be known as a worse chair than Arthur Burns. He believes the Fed will raise rates 75 bps or more in July and 50 bps or more in subsequent meetings and won’t pause until it is clear and convincing that inflation is headed back to 2%.

The hedge fund manager said a federal funds rate of 5% next year is in the cards.

He added that while the recession word is on everyone’s lips, recession talk won’t bring down inflation.

“Consumers and corporations are well capitalized and underlevered,” he adds. “Banks are massively underinvested with one of the lowest ratio of deposits to loans in history. The potential for a future recession won’t stop the Fed from raising rates now.”

Ackman finishes by saying the Fed has a credibility problem as the bond market flat out ignores Powell’s and the governors’ commentary. “This must be concerning to the Fed as managing inflationary expectations is critical to controlling inflation,” he said. “Expect even more hawkish commentary until the bond market wakes up.”

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Easing chip shortages to help Volkswagen in H2 – CEO

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© Reuters. FILE PHOTO: Volkswagen logo is pictured at the 2022 New York International Auto Show, in Manhattan, New York City, U.S., April 13, 2022. REUTERS/Brendan McDermid/File Photo

BERLIN (Reuters) – Volkswagen (ETR:VOWG_p) sees a strong second half of 2022 and expects progress in catching up with rival Tesla (NASDAQ:TSLA) as easing chip shortages start to offset supply chain bottlenecks and rising costs, the carmaker’s CEO said on Tuesday.

“We are earning more than ever,” Chief Executive Herbert Diess said at a works meeting, adding Volkswagen is ramping up electric vehicle volumes in its biggest markets in Germany and China thanks to easing semiconductor shortages.

This should allow the carmaker to narrow the Volkswagen-Tesla gap this year and meet its goal of becoming market leader by 2025 if it seizes the moment while the U.S. electric car maker burns cash on large investments, the CEO said.

“Elon (Musk) has to ramp up two highly complex factories in Austin and Gruenheide at the same time – as well as expand production in Shanghai. That’s going to take strength out of him,” Diess said.

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Reliance Chairman Mukesh Ambani steps down as director of telecom arm

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© Reuters. FILE PHOTO: Mukesh Ambani, Chairman and Managing Director of Reliance Industries, arrives to address the company’s annual general meeting in Mumbai, India July 5, 2018. REUTERS/Francis Mascarenhas

BENGALURU (Reuters) – Reliance Industries Chairman Mukesh Ambani has stepped down as director of Reliance Jio Infocomm Ltd, the conglomerate’s telecom arm said on Tuesday.

Reliance Jio said https://refini.tv/3Nrs773 it has appointed Mukesh’s son and non-executive director Akash Ambani as the chairman of its board. Akash has been involved with the telecom unit since its launch in late 2016, where he started as a director.

India’s telecoms sector had been upended after the entry of Jio, which triggered a price war that forced some rivals out of the market and turned profits into losses.

Jio, which started out offering mobile teleservices, has been aggressively investing in services like internet broadband and forging ties with handset makers to launch low-cost smartphones and providing 5G services.

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UBS Downgrades Ebay, Farfetch to Neutral on Guidance Risks

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© Reuters. UBS Downgrades Ebay (EBAY), Farfetch (FTCH) to Neutral on Guidance Risks

By Senad Karaahmetovic

UBS analyst Kunal Madhukar downgraded shares of Farfetch (NYSE:FTCH) and eBay (NASDAQ:EBAY) to Neutral from Buy.

EBAY shares are cut alongside the price target (to $48.00 from $60.00 per share) despite low expectations. Still, the analyst expects 2022 GMV to fall by 17%, which is worse than the guidance of 16%-14% and the Street’s consensus of 15%.

“We think the buy side may already be lower than the Street. YTD, the stock has been one of the better performers within the eCommerce space, benefiting from both a ~2% dividend yield and aggressive share repurchases. However, when the market rebounds, we think EBAY shares could lag smaller cap peers (which are likely to grow much faster in a recovery) until investors have better visibility into organic growth at eBay. Consequently, we think the shares likely will remain range-bound until visibility improves,” Madhukar told clients in a note.

The price target on Farfetch shares goes to $10.00 from the prior $13.00 as Madhukar sees too optimistic assumptions for growth from the side of the company’s management.

“In addition to slower growth, we think upside is limited by lack of visibility into key drivers of value, including FPS volumes and economics, as well as on China. Granted, the YNAP deal could be a positive catalyst (link), but if the disclosure is limited (like with the recent deal with Neiman Marcus Group or NMG), it may be challenging for investors to understand if it creates shareholder value or not. Last, FTCH remains a profitless-tech company in an environment where investors are acutely focused on profits, and thus, there is limited valuation support,” the analyst added.

Similar to eBay, Madhukar sees shares remaining “range-bound until we have better visibility into growth and/or the path to profitability.”

Shares of eBay and Farfetch are down 2.4% and 2.2%, respectively, in pre-market Tuesday.

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