Bill Ackman Stops Betting Against Bonds. What It Means.

Bond yields are important because they create a benchmark for borrowing costs throughout the economy. Lately, stocks have been falling every time bond yields creep up on concern that higher interest rates will dig into corporate earnings.

Perhaps a 5% yield is just too high and it’s time for a turnaround. It’s certainly an attractive coupon for a guaranteed return compared with volatile stocks–even though the likes of Microsoft or Google-parent
Alphabet,
who both report after the market closes Tuesday, are having a pretty good 2023.

Bonds are also a good investment if you expect weak economic growth to hurt companies. Ackman made that point himself Monday, saying that the economy is slowing faster than even the data suggest.

That’s the reasoning behind having a portfolio of 60% stocks and 40%. In theory, when the economy turns sour, bond prices perk up and yields fall, and vice versa.

But recently stocks and bonds have been moving in tandem, rather than inversely. That’s because growth has been resilient, while inflation, which remains elevated, is toxic to bond prices.

Note that Ackman didn’t say he’s buying lots of bonds, just that he pulled his short positions. A few months from now, it may look smart to have piled into Treasuries in October. But at the moment, it’s still a risky proposition.

—Brian Swint

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Treasuries Rally After Pershing’s CEO Covers Bond Short

Pershing Square Holdings
CEO Bill Ackman helped ignite a sharp rally in Treasury securities on Monday when he said on a social media post that he had covered his bond short bet. That came after the yield on the 10-year Treasury rose to 5% for the first time in 16 years.

• A benchmark that helps set the rates for mortgages and corporate loans, the 10-year yield rose as high as 5.021% early on Monday and then reversed to settle at 4.836%. The yield on the note started the year around 3.8%.

• Ackman posted on X, the platform formerly known as Twitter, that “There is too much risk in the world to remain short bonds at current long-term rates.” Earlier Monday, he had tweeted: “The economy is slowing faster than recent data suggest.”

• This is the third bond score for Ackman in recent years. He was bearish on corporate bonds before Covid-19 and scored when the corporate market cratered with the onset of the pandemic. And he was correctly bearish on bonds in 2022, when rising rates walloped bonds.

• The covering of the Ackman short ends what likely was a profitable trade for the outspoken fund manager, who had tweeted in early August that he was short long-term Treasuries. At the time, the 30-year Treasury yielded about 4.20%.

What’s Next: Pimco co-founder now retiree Bill Gross, long known as the Bond King, sees weakness developing in the economy and said he is positioned to benefit from lower short-term rates. Analysts expect Thursday’s preliminary third quarter GDP reading to show real annualized growth of 3%.

—Andrew Bary

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Tesla Discloses More Justice Department Inquiries and Spending Plans

Tesla
said the Justice Department sent it information requests and subpoenas as it looks into matters related to management benefits, related parties, personnel decisions, vehicle range, and its autopilot technology. The disclosures came in a regulatory filing on Monday that also outlined spending plans.

• The quarterly filing said there was the possibility of a material adverse impact on Tesla’s business in the case of an enforcement action, but added that to its knowledge no government agency has concluded any wrongdoing has happened.

• The Manhattan U.S. Attorney is looking into benefits Tesla may have given to CEO Elon Musk, including a proposed house for him near the Austin factory, The Wall Street Journal previously reported. It is also looking at transactions between Tesla and entities connected to Musk.

• On vehicle range, Consumer Reports testing found that Tesla vehicles fall short of the indicated range per charge. Weather, driving conditions, and driving style can affect range for electric vehicles. Tesla said it routinely cooperates with requests from regulators and the government.

• Tesla disclosed that its capital spending on plants and equipment should exceed $9 billion in 2023, and average $7 billion to $9 billion a year in 2024 and 2025. Analysts had expected a slightly lower amount for this year, but more than $9 billion in 2024 and $10 billion in 2025.

What’s Next: Tesla is spending more on research and development, funding new products, its autonomous driving programs, and Optimus, the artificial-intelligence-trained humanoid robot that Musk wants to use to replace humans doing repetitive tasks.

—Al Root

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Nvidia Said to Be Taking Aim at Intel with PC Processors

Nvidia,
which has soared this year on hopes for its artificial intelligence chips, is taking aim at rival Intel by developing a chip for personal computers, Reuters reported. Intel shares fell after the report came out Monday afternoon, as did shares of
Advanced Micro Devices.

• Nvidia is using
  Arm Holding
  technology to develop the chips, which would run
  Microsoft’s
  Windows operating system, Bloomberg reported, citing people familiar with the plans. They could go on sale as early as 2025, the report said.

• Microsoft is helping chip makers build Arm-based processors for Windows PCs, Reuters reported. Apple has nearly doubled its market share three years after replacing
  Intel
  chips with its own Arm-based chips for its Mac computers, the report said, citing preliminary third quarter data from IDC.

• AMD, which licenses Intel’s technology, is also developing Arm-based processors, Bloomberg reported. These chips could also be available by 2025.

• Intel is preparing a new chip for December release that can run a generative AI chatbot on a laptop rather than going through cloud computing data centers for power, and executives recently demonstrated it on laptops that weren’t connected to the internet.

What’s Next: Intel is expected to report third quarter earnings on Thursday. Analysts tracked by FactSet expect earnings of 22 cents a share on revenue of $13.5 billion, which would be down 11% from the same time last year.

—Liz Moyer

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Bitcoin Soars as Traders Bet on ETF Approvals

Bitcoin rose above $35,000 Tuesday for the first time since May 2022 amid hopes that the Securities and Exchange Commission (SEC) will soon allow the launch of the first spot Bitcoin exchange-traded fund (ETF).

• The price of Bitcoin rallied to above $34,000 early Tuesday, briefly piercing $35,000, and buoying other cryptos, including Ether and Dogecoin. Bitcoin has rallied some 30% in 10 days after holding in a range around $26,000 for almost two months.

• Crypto bulls are eyeing the possible conversion of the Grayscale Bitcoin Trust to an ETF or the approval of such ETFs from
  BlackRock
  and other financial firms.

• Bitcoin’s rally began after Barron’s and other media reported that the SEC wouldn’t appeal its loss against Grayscale over its possible conversion. The latest catalyst was news that BlackRock’s iShares Bitcoin Trust has been listed on the Depository Trust & Clearing Corporation (DTCC)—typically a precursor to, but not a promise of, an ETF starting to trade.

• The prospect of a spot Bitcoin ETF, which would hold the token itself instead of Bitcoin futures—held by existing ETFs—has been a looming catalyst for cryptos. If launched, they are expected to usher in a fresh wave of both retail and institutional investor interest and be a long-term support for prices and adoption.

What’s Next: While a spot Bitcoin ETF does seem inevitable, there is no promise that the launch is imminent, though the listing of BlackRock’s ETF on the DTCC seems like a good sign. The SEC has a history of being tough on crypto, and it wouldn’t be a shock if the regulator made another attempt to kick a decision down the road.

—Jack Denton

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A Crypto Champion Could Become Next House Speaker

House Majority Whip Tom Emmer (R., Minn.) is emerging as a front-runner to become the next House speaker, something that could cheer the crypto industry. House GOP members met Monday evening to hear from Emmer and other candidates before a caucus vote expected today on a nomination.

• Emmer is a co-chair of the Congressional Blockchain Caucus and has sponsored crypto-friendly bills. He speaks to the industry frequently and often advocates for crypto as a potential economic driver for the U.S., saying it is akin to the internet boom and shouldn’t be choked by regulation.

• The crypto industry is pressing for legislation that would partially shield it from oversight by securities regulators. The bills, already advanced by the House Financial Services Committee, would establish rules for trading platforms and stablecoins and could come to a vote as soon as this year.

• The price of Bitcoin was up 12% as of Monday evening, to above $33,000. The largest digital asset has broken out from a stagnant trading range around $26,000, which dominated for almost two months until a recent rally. Ethereum rose 5.9% late Monday, to above $1,700.

• Higher returns on risk-free Treasuries tend to dampen demand for riskier bets, but Bitcoin has bucked that trend to surge amid optimism that the Securities and Exchange Commission will soon clear a Bitcoin exchange traded fund.

What’s Next: While House committees have been eager to advance crypto legislation, the Senate Banking Committee hasn’t engaged in a corresponding process. The winner of the speaker’s gavel also has more pressing concerns: avoiding a government shutdown and considering aid packages to Ukraine and Israel.

—Joe Light and Liz Moyer

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—Newsletter edited by Liz Moyer, Rupert Steiner, Callum Keown