Bill Ackman Bets Against Corporate Credit

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"The hedge fund manager Bill Ackman has placed a large bet that companies around the world will struggle to pay their debts because of the economic hit from the coronavirus pandemic, only eight months after he netted $2.6bn from a near-identical trade.

Ackman, the founder and chief executive of the Pershing Square hedge fund, previously faced criticism for saying “hell is coming” in the stock market in a television interview without mentioning that he had made highly profitable bets protecting his fund from turmoil. An unspecified hedging position was disclosed in a letter to shareholders earlier in March.

“I hope we lose money on this next hedge,” the billionaire said, according to the Financial Times, which organised the conference on Tuesday. “We’re in a treacherous time generally and what’s fascinating is the same bet we put on eight months ago is available on the same terms as if there had never been a fire and on the probability that the world is going to be fine.”

The latest bet on companies struggling is just under a third of the size of his previous super-profitable trade, the FT said.

On Tuesday, Ackman said he expected a “robust recovery” in the economy eventually but predicted the next few months would be “a challenging time”, despite the revelation on the same day by drug companies Pfizer and BioNTech that their coronavirus vaccine candidate was 90% effective during mass testing."

https://www.theguardian.com/busines...places-new-bet-against-corporate-credit-covid

Sure, there's a camp that says that quantitative easing, government buy backs of government and corporate bonds, and low interest rates offer an amazing opportunity to use debt as leverage; but, at the same time, this risks the entire enterprise, in the event of an unforeseen occurrence -- such as a pandemic. Hertz failed because of this and banks failed because of this in 2008. Don't let your company fail because of this. Don't over-leverage your company because of greed and popular trends.

Anyways, I'm in the fatFIRE camp and view business as a means of accumulating wealth. I wouldn't take on debt for perceived gains, even if the plan seems fool-proof. At the end of the day, money in the bank is the most sure option, not a loan to the bank and a posited operation to obtain cash flow.

Also, on a common sense note, why are people being bullish when a good chunk of the consumer population is unemployed and in lockdown? Who is going to buy the products? Cheap money is tempting but, even with a solid plan, there needs to be consumers who'll buy. There simply isn't right now. Therefore, the reasoning is simply not sound. This isn't econometrics. It's common sense.
 

secretagentdad

American Dad is the best show of all time.
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Can’t fight the fed.

Or can u?

Coming up at 6 o clock