Prominent billionaire investor William Ackman has revealed his hedge fund’s significant short position on U.S. 30-year Treasuries, warning of increasing risks in the U.S. economy. This move is seen as a necessary protection against potential spikes in long-term rates that could harm the stock market. Ackman fears that the 30-year Treasury yield could surge to 5.5% in the near future, especially given the 4.16% climb on Wednesday, which was the highest of the year. He attributes this potential increase to factors such as escalating defense costs, energy transitions, and increasing labor power, which are fueling inflation despite the Federal Reserve’s aggressive rate hikes.
This announcement comes at a time when the U.S. is also facing a significant increase in credit card debt. According to reports, American credit card debt has reached crisis levels, with average balances at a record $7,300 and median savings at only $5,300. Delinquency rates have been escalating for the sixth consecutive quarter, which has not been seen since 2008. The total credit card debt has surged past $986 billion, and some states are nearing an average debt of $10,000. Interest rates have already peaked at 25% and are expected to cross 30% soon. With living costs on the rise, more and more Americans are resorting to borrowing, further exacerbating the worrying debt situation.
The combination of Ackman’s short position on Treasury bills and the growing credit card debt highlights the increasing economic challenges facing the U.S. The uncertainties in the market, along with the high debt levels, have also started to impact the housing sector. Mortgage rates for 30-year fixed-rate mortgages have advanced to 7.2%, and the rates for 5/1 adjustable-rate mortgages (ARM) have crossed the 7% mark.
Moreover, state and local governments are currently experiencing their worst decline in income tax revenues ever recorded, second only to the Great Financial Crisis. These declining revenues are accompanied by a worrying trend of federal tax receipts, which are nearing an unsettling -10% on a year-on-year basis. This indicates an ongoing economic downturn and contradicts the overvalued state of financial assets, highlighting an underlying and worsening economic situation.
Overall, these developments paint a concerning picture for the U.S. economy. Ackman’s short position on Treasury bills reflects his concerns about potential spikes in long-term rates, while the growing credit card debt, rising mortgage rates, and declining tax revenues further indicate the economic challenges at hand. It remains to be seen how these factors will play out and what steps the government and investors will take to mitigate the risks and stimulate economic growth.
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