Bill Ackman warns economy will fall off a cliff if the Fed doesn’t hurry and cut rates

“I think the market expects sometime middle of next year. I think it’s more likely as early as Q1 [first quarter],” the founder and CEO of Pershing Square Capital Management said in a just-published excerpt from coming episode of “The David Rubenstein Show: Peer-to-Peer Conversations.”

(The market is currently pricing in a 41% chance of a rate cut by March, according to the CME FedWatch tool that derives rate probabilities off of trading in fed funds futures contracts.)

Ackman believes a weakening economy will “likely demand an earlier move…we’re seeing evidence of that in some of our companies…I have some concerns,” he said.

He didn’t elaborate on those names, but Chipotle
CMG,
-0.80%
and Hilton Worldwide
HLT,
-0.42%,
both sensitive to the economy, were among the fund’s top holdings as of late August. Chipotle stock has gained 59% this year, and Hilton’s up 32%, so they seem to be hanging in there for now.

Ackman explained that the Fed sticking to the mid 5% range on rates, with inflation trending below 3%, will mean a “very high real rate of interest.”

“And I think that is having a retarding effect on the economy. And then of course, many businesses and many individuals have the benefit of fixed-rate debt. And that fixed-rate debt, certainly for companies and commercial real estate starts to roll off, so I think there’s a risk of a hard landing if the Fed doesn’t start to cut rates pretty soon,” he said.

“There has been a huge subsidy in terms of low interest rates, and most companies fixed their rates or debt at very low rates and certainly real-estate investors did the same. And that works until it doesn’t work,” he said.

“What’s going to be interesting is to see what happens when people have to reprice their debt. And that can have a certain cliff-like effect. And you’re certainly seeing that in real estate,” he said.

Not everyone agrees with this view. On X, Jim Bianco, president and macro strategist at Bianco Research, said Ackman and many others wrongly argue that rates in the 5.5% or so range represent a “very high real rate of interest.”

“They assume that real yields during the QE period from 2009 to 2020 were ‘normal’ and the current level is ‘abnormal.’ I’ve argued this has the anchoring backward. Current real yields are now normal, and the 2009 to 2020 real yields were ‘abnormal,’” he said, offering up a chart (see here) to shore up his point.

“The current level of real yields of 2.10% is below the pre-QE (pre-2009) averages. The U.S. economy was fine with real yields at these levels b4 QE [before quantitative easing]. I have argued previously the U.S. economy is defying predictions of a downturn because these real yields are not punishing,” says Bianco.

Read: Investors beware: ‘Magnificent Seven’ are starting to resemble ‘Nifty 50’ stocks that got crushed in the 1970s market crash

The markets

The S&P 500
SPX
is closing in on a four-month high, as bond yields
BX:TMUBMUSD10Y

BX:TMUBMUSD02Y
continue to fall after comments from Fed’s Waller. Gold
GC00,
+0.25%
is hovering at $2,043/oz and one day away from the OPEC+ meeting, oil
CL.1,
+1.69%
is up over 1.3%. German stocks
DX:DAX
are poised for four-month highs ahead after softer-than-forecast consumer prices.

The buzz

The passing of Charlie Munger, Warren Buffett’s legendary right-hand man, has left a hole in the investment world. There is no shortage of his wisdom being shared right — this column parsed one of his last interviews, where he acknowledged that most of the “low-hanging fruit” for investors is gone.

Also read: Munger himself compiled a list of common mistakes. It’s not just about investing.

Opinion: Who will say no to Warren Buffett now that Charlie Munger is gone?

Revised gross domestic product data for the third quarter was updated to show the economy grew 5.2% from 4.9% previously reported. The U.S. trade in goods deficit widened to $89.8 billion in October. Richmond Fed President Tom Barkin will speak at 10 a.m., followed by Cleveland Fed President Loretta Mester at 1:45 p.m., then the Fed’s beige book of economic conditions will be released at 2 p.m.

General Motors
GM,
+9.38%
is up more than 3% after the automaker said it will buy back $10 billion in stock.

Dollar Tree
DLTR,
+4.38%
shares are down after earnings disappointment and a warning of “softer demand from low-income households.” Foot Locker
FL,
+16.07%
is headed for a 4-month high after blowout earnings and a better sales outlook.

GameStop
GME,
+20.46%
is up 15%, a day after its best day since January amid surging speculative bets for the meme stock.

Workday stock
WDAY,
+11.02%
is surging after the software company raised its subscription-revenue forecast, and CrowdStrike shares
CRWD,
+10.40%
is getting a lift from the cybersecurity group’s forecast beat.

Earnings from tech names Salesforce
CRM,
+2.41%
and Synopsys
SNPS,
+1.61%
are due after the close.

Las Vegas Sands’
LVS,
-4.87%
biggest shareholder, Miriam Adelson, sold $2 billion in the company’s stock and will reportedly use that to take a majority stake in Mark Cuban’s NBA team, the Dallas Mavericks.

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The chart

Mark Cuban’s apparent plans for a NBA stake sale have sparked speculation that the billionaire entrepreneur is gearing up to run for president in 2024. Earlier this week, Cuban said he was leaving investment reality show ‘Shark Tank’ after its next season.

From play-money prediction market platform, Manifest, comes this chart that shows some Cuban-for-president bets may be lining up:

The tickers

These were the top-searched tickers on MarketWatch as of 6 a.m. Eastern:

Ticker	Security name
TSLA, -1.05%	Tesla
GME, +20.46%	GameStop
RDHL, +26.32%	RedHill Biopharma
NVDA, +0.67%	Nvidia
AMC, +7.01%	AMC Entertainment
AAPL, -0.54%	Apple
NIO, -0.42%	Nio
PLTR, +0.66%	Palantir
AMZN, -0.48%	Amazon
MSFT, -1.01%	Microsoft

Random reads

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Good news and bad news: Blind mystic Baba Vanga’s 7 predictions for 2024.

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