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Bill Ackman turns $27 million into $2.6 billion in one month.

PREPARED BY: Chris Stanford 

DATE: 03/26/20

Bill Ackman turned $27 million into $2 billion betting against the corporate bond market. Time and time again he has proven the doubters wrong. Full disclosure, Ackman was a personal mentor of mine several years ago. Naturally, my opinions about him are slightly biased. In the last few years, his fund has gone through a rough patch. The fund experienced some intense losses on positions like Valeant Pharmaceuticals, Herbalife, JCPenney, and a few others. Despite these losses, his fund returned 58% last year. This previous last week we saw Bill Ackman make an appearance on CNBC. He made his views extremely clear. Ackman says,” hell is coming.” Right after he made that appearance he sold off his corporate bond hedge. 

BETS AGAINST CORPORATE BONDS

He made some bets against corporate bonds as a result of the Fed reinstating Quantitative Easing. Quantitative easing is when a central bank lowers interest rates, and purchases a number of financial assets. The Fed did provide some warning that this was coming. However, it still took a lot of fund managers by surprise that they moved so swiftly. Investors are expecting a dramatic decline in corporate earnings, from the current shutdown. Right now there is roughly $9.6tn of corporate debt outstanding in the US, built up after a decade of low-interest rates that have encouraged a borrowing binge.

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