While the mood on the markets has recently deteriorated again due to robust economic data and concerns about further rising interest rates, some well-known investors are warning investors not to take risks.
• Hedge fund manager Bill Ackman expects the economy to slow
• Altimeter Capital CEO Brad Gerstner expects interest rates to rise further
• BlackRock manager Rick Rieder considers less risky investments to be a good alternative
Even though the US Federal Reserve took a pause on interest rates in September, this was preceded by a series of interest rate increases. The Fed raised interest rates eleven times in 16 months. And concerns about inflation and therefore concerns about higher interest rates over a longer period of time and their impact on the economy continue. According to CNBC, many top investors recently warned against taking risks.
Hedge fund manager Bill Ackman
Last week Monday, hedge fund manager Bill Ackman said, according to CNBC, that the economy was beginning to slow, after he had presented a pessimistic outlook on what’s next for the economy at CNBC’s flagship investor summit, Delivering Alpha, the week before .
Ackman stated at the beginning of last week that he would not have any more Interest rate increase expect, but the robust data published last Tuesday US labor market renewed concerns that the Fed could be forced to take even greater action against high inflation, which in turn would have negative consequences for the economy and the stock market. According to CNBC, the latest market assessment based on the CME’s FedWatch tool agrees with Ackman. However, the percentage of respondents who do not expect interest rates to rise in November fell from 83 percent to 68 percent last Tuesday.
The yield on ten-year US bonds climbed to its highest level in 16 years last Tuesday following robust data from the US labor market. Ten-year Treasuries yielded 4.82 percent. “With a 20-year term, the 5 is now in front of the decimal point for US government bonds,” explained portfolio manager Thomas Altmann from QC Partners, according to dpa-AFX. Ackman believes inflation is likely to remain elevated for a longer period of time and yields could rise even further: “Our view really is that we’re in a different world. … It wouldn’t shock me if interest rates on 30-year Treasury bonds well above the five percent limit, and you could see interest rates on ten-year Treasury bonds approaching the five percent limit,” CNBC quoted the hedge fund manager as saying.
TCW CEO Katie Koch
Ackman is not alone in his opinion. Katie Koch, TCW president and CEO, said on Delivering Alpha, “We’re more pessimistic than most people about the future,” according to CNBC. She explained: “Things break when you adjust prices aggressively.” She says we haven’t experienced “the pain of higher interest rates” yet, but she’s sure it’s coming. Koch still expects the economy to face a recession. “There is a delay and more things will break. We’ve already broken or almost broken a few things. We’ve almost ruined the UK bond market, and we’ve ruined some regional banks. And there’s clearly going to be further disruption come as the capital is being revalued,” CNBC quoted the TCW president as saying. “At the moment you are being paid to be patient,” said Koch. “Cash has a good return.” She believes that there will be great difficulties in reaching the rate cut point.
Altimeter Capital CEO Brad Gerstner
Brad Gerstner, CEO of Altimeter Capital, is also currently cautious and, according to CNBC, stated that he has reduced his long exposure to stocks by 50 percent compared to his short exposure. “I think the risk has increased that the Fed has exceeded its target,” said Gerstner. “I’m not sure if we’ll see a hard landing or a soft landing, but I’m sure the likelihood that we’ll see a significant slowdown in 2024 has increased,” says CNBC of the widely followed technology investor again. In his opinion, the debt of consumers and companies is being driven ever higher. “I mean, think about it. We went from a 0% effective interest rate environment, where businesses borrowed for free and consumers borrowed for free, to mortgages with an interest rate of 8%; we have 10% car loans; we 20% have credit cards; Student loans are about to be introduced; The huge increase in business loans, which occurred at almost zero cost from April to December 2020, will now have to be re-taken at interest rates [refinanziert] that many of these companies cannot afford. “That is the definition of a delay effect and a headwind,” said Gerstner.
Gerstner expects a further increase in interest rates and was not so sure at Delivering Alpha why the majority did not expect a further increase. “If you just listen to their words, you have to be quite afraid that there will be another interest rate increase,” said Gerstner. In his opinion, the markets still believe a bit that the Fed is bluffing, while Gerstner sees a good chance that there will be another interest rate hike. “He [Fed-Vorsitzender Jerome Powell] wants to be Volcker. “He doesn’t want to be remembered as the Fed chair who didn’t fight inflation,” CNBC quoted the Altimeter Capital CEO as saying.
BlackRock manager Rick Rieder
Rick Rieder, senior manager of fixed income investments at BlackRock, explained on CNBC’s Delivering Alpha that the market may have been betting on the Fed incorrectly. In his opinion, although no further interest rate hikes are necessary, he believes that the Fed will still raise interest rates in November. “You have a Fed telling you that it would like to do more, it would like to make sure that it brings down inflation,” CNBC quoted Rieder as saying. Rieder only expects interest rate cuts in the second half of 2024.
He therefore currently considers less risky investments to be a good alternative. “I love commercial paper with a one-year interest rate of 6.5%,” Rieder said. “I know what my yield will be for single-A issuers and large, high-profile issuers, and I can easily lock in that rate.”
Soros Fund Management CEO Dawn Fitzpatrick
Dawn Fitzpatrick, CEO and chief investment officer of Soros Fund Management, appeared on CNBC’s Delivering Alpha to raise several concerns about consumers, loan defaults and bonds. She pointed to the CMBS market and the hundreds of billions that banks hold in bond portfolios with remaining maturities – the recent rise in bond interest rates is making the pressure even worse. In addition, according to CNBC, she also referred to US consumers with trillions of dollars worth of fixed-rate mortgages that have not yet adapted to the new interest rate reality. “Everything gets more difficult from here,” said Fitzpatrick.
Editorial team finanzen.net