Bill Ackman predicts 2021 will be a rewarding year for the equity market and urged investors to "go long", but the Wall Street legend and Pershing Square founder worries that irrespective of Pfizer's vaccine breakthrough, the US faces a grim winter of coronavirus casualties.
Bill Ackman predicts 2021 will be a rewarding year for the equity market and urged investors to "go long", but the Wall Street legend and Pershing Square founder worries that irrespective of Pfizer's vaccine breakthrough, the US faces a grim winter of coronavirus casualties.
In a week where Australian shares advanced 3.5 per cent and the Dow Jones Industrial Average was on track for a 2.7 per cent return, investors are turning their thoughts to the promise of stability under US President-elect Joe Biden, a gridlocked Washington incapable of policy gambles, and the possibility of inoculating most of the world against COVID-19 by mid- to late-2021.
"You've got low rates, you've got likely stimulus, you could see infrastructure spending, you've got still very well capitalised banks, you've got access to capital. So I think 2021 could be a very, very good year in markets, so go long I would say," Mr Ackman told the Sohn Hearts and Minds investment conference on Friday, via a virtual appearance.
"Eight months of World War II we didn't lose as many people as we did in April 2020."
— Scott Galloway, NYU
However, the coronavirus is "out of control". As much as the vaccine represented a triumph of science, "the problem is I think unsophisticated people will take this announcement as, 'oh, I don't have to worry'. And you want people to be a bit scared," he said.
"It would really suck to get sick and or die when a month or two later you can have a vaccine."
Australia and New Zealand, "you guys know how to manage a virus, and a lot of respect for the way your country's handled this".
The events of the past week have also unleashed what could be the start of a spectacular rotation in markets. Since the Biden-Harris ticket limited Donald Trump to a one-term presidency, and Pfizer showed its COVID-19 hand, bonds have been punished and out-of-luck value stocks have surged on sudden optimism around global growth.
Consumer confidence in Australia has been restored to seven-year highs following the Reserve Bank's rate cuts, the Westpac-Melbourne Institute Index revealed this past week. Property buying intentions are similarly bullish.
The Sohn conference presenters declined to deviate too far from technology, disruption and COVID-19 winners such as Temple & Webster (Regal), Slack (TDM) and Fisher & Paykel (Milford). But blue-chip CSL was pitched as an unlikely "undiscovered" gem by Paradice's David Moberley.
The plasma supply issues it faced as donor visits drop are transitory, and overblown by the market, but create a “rare opportunity” in CSL shares, the fund manager believes.
Mr Moberley described the company as one of the best businesses listed in the Australian market with a management team among the country’s best capital allocators. It has also significant latent value in its asset base and research and development pipeline.
CSL shares were flat at $308.21; the stock traded at a record $341 a share on February 19. It's up 12.3 per cent this year.
The US economy is meanwhile on track for a "very, very good" recovery.
"You've got a more moderate Democrat in the White House, you have the kind of far left of the party that's been neutered a bit by the results of the election," Mr Ackman said. "I mean Nancy Pelosi's expectation was the Democrats would take 20 seats in the House – new seats. Turns out they lost ten."
Ivanka Trump, who Mr Ackman knows personally, is a "very capable" person who will probably run in 2024. But the longer Mr Trump refuses to acknowledge his election loss, the more it will hurt her future prospects, he believes.
"Trump's actually done a lot of good, he's done some harm as well, and he's done it in a way that I think is far from ideal but I do think things like corporate tax reform are long-term good for the country, not just for Wall Street, but for the middle class for the working class etcetera. It helps make the country more competitive, it helps keep businesses here."
Pent-up demand
Mr Ackman estimated $US2.5 billion ($3.5 billion) to $US3 trillion of savings have been built up because "people aren't eating out, they're not going on vacation, they're not driving and by the way, when you keep someone locked down, their next move when they can actually feel safe is going to be to go on a vacation, to go drinking, to go to dinner, to go to a show".
"It's probably the single greatest time in history to open a restaurant," he suggested. Mr Ackman was interviewed by former ASX director and Manikay Partners founder Shane Finemore (Manikay closed earlier this year).
This past week, software, e-commerce and technology stocks have sold off as investors decide they no longer need to pay a premium for high-growth businesses to protect their portfolios from economic weakness.
NYU professor and author Scott Galloway told the Sohn event that the US economy has accelerated from dysfunctional economy to a dystopian one, and COVID-19 has delivered a greater toll on lives per day than any previous crisis in history.
"Eight months of World War II we didn't lose as many people as we did in April 2020," he said.
Professor Galloway was critical of the deployment of stimulus and the way winners and losers have been carved up. "We're effectively kneecapping what have been the biggest source of jobs and growth," being small businesses.
"Capitalism on the way up, and socialism on the way down – it has a word –cronyism."
Losing with Buffett
It's a claim only a few can make, but Berkshire Hathaway was somewhat of a disappointing investment for Pershing: "we have probably lost more money in Berkshire than anyone in the world," Mr Ackman said of exiting his position.
He also called Warren Buffett his "unofficial mentor", who he has "enormous respect" for.
But going into the downturn, Mr Ackman thought Mr Buffett would be more opportunistic. It turns out, he wasn't. "Let's not sell because Buffett's going to take advantage," he recalls saying as the Berkshire chairman was doing TV appearances saying volatility was good. "'World wars, Vietnam, you know COVID's no different'. We were expecting Buffett to be super aggressive as markets came in, and we were surprised that he was not more so."
Pershing lost about 10 per cent on the position.
Mr Ackman has raised $US4 billion via a Special Purpose Acquisition Company or SPAC with financial data business Bloomberg and accommodation platform Airbnb among those linked with an Ackman play that would in effect take those businesses public.
He has outgrown punishing short activism. This year, he is better known for a big bet that was wildly successful. After famously warning that hell was coming in March, he confirmed that he made $US2.6 billion in a complex but fast trade that profited as credit markets tanked.
"I've called probably four Sunday night investment team meetings in the history of the firm and I called one [February 23]," he said. "Here's how it's going to play economically: markets are going to crash, credit markets are going to crash, and on that call we started talking about hedging possibilities."
Pershing decided to play in the credit markets. "We like stuff for a long time that has only gone one way," he explained. "We decided to put on $US25 billion of notional short." By the time the strategy was fully deployed, Mr Ackman said, Pershing owned 26 per cent of the credit default swaps on the investment grade index in the US, and 23 per cent in Europe.
"On the 8th [of March] we were up $US2.6 billion."
This article was originally posted on The Australian Financial Review here.
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