This page has been archived and commenting is disabled.
Carl Icahn Says Market "Way Overpriced", Warns "God Knows Where This Is Going"
To be sure, no one ever accused Carl Icahn of being shy and earlier this year he had a very candid sitdown with Larry Fink at whom Icahn leveled quite a bit of sharp (if good natured) criticism related to BlackRock’s role in creating the conditions that could end up conspiring to cause a meltdown in illiquid corporate credit markets. Still, talking one’s book speaking one’s mind is one thing, while making a video that might as well be called “The Sky Is Falling” is another and amusingly that is precisely what Carl Icahn has done.
Over the course of 15 minutes, Icahn lays out his concerns about many of the issues we’ve been warning about for years and while none of what he says will come as a surprise (especially to those who frequent these pages), the video, called “Danger Ahead”, is probably worth your time as it does a fairly good job of summarizing how the various risk factors work to reinforce one another on the way to setting the stage for a meltdown. Here’s a list of Icahn’s concerns:
- Low rates and asset bubbles: Fed policy in the wake of the dot com collapse helped fuel the housing bubble and given what we know about how monetary policy is affecting the financial cycle (i.e. creating larger and larger booms and busts) we might fairly say that the Fed has become the bubble blower extraordinaire. See the price tag attached to Picasso’s Women of Algiers (Version O) for proof of this.
- Herding behavior: The quest for yield is pushing investors into risk in a frantic hunt for yield in an environment where risk free assets yield at best an inflation adjusted zero and at worst have a negative carrying cost.
- Financial engineering: Icahn is supposedly concerned about the myopia displayed by corporate management teams who are of course issuing massive amounts of debt to fund EPS-inflating buybacks as well as M&A. We have of course been warning about debt fueled buybacks all year and make no mistake, there’s something a bit ironic about Carl Icahn criticizing companies for short-term thinking and buybacks as he hasn’t exactly been quiet about his opinion with regard to Apple’s buyback program (he does add that healthy companies with lots of cash should repurchases shares).
- Fake earnings: Companies are being deceptive about their bottom lines.
- Ineffective leadership: Congress has demonstrated a remarkable inability to do what it was elected to do (i.e. legislate). To fix this we need someone in The White House who can help break intractable legislative stalemates.
- Corporate taxes are too high: Inversions are costing the US jobs.
Here’s more from Reuters:
Billionaire investor activist Carl Icahn ramped up criticism of the U.S. Federal Reserve, warning about the unintended consequences of ultra low interest rates on the economy and financial markets.
"They don't understand the treacherous path they are going down," Icahn said in an interview with Reuters, in which he also declared his support for Donald Trump as a candidate to be the next U.S. president.
"God knows where this is going. It's very dangerous and could be disastrous," said Icahn, who has been a consistent critic of the Fed for keeping its benchmark interest rate close to zero since late 2008.
Icahn said he felt compelled to raise red flags about the state of the financial markets because he believes if more big investors had warned about subprime mortgage market in 2007, the United States might have avoided the crisis that strangled the economy the following year.
In a video entitled "Danger Ahead" and released on Tuesday, Icahn said the Fed's rate policy had enabled U.S. chief executives - many of whom he describes as "nice but mediocre guys" – to pursue "financial engineering" that he said has exacerbated an already wide gap between rich and poor in America.
Icahn, who slammed money managers who benefit from the so-called "carried interest" loophole under which their earnings are taxed as capital gains rather than ordinary wage income, also endorsed Donald Trump's presidential bid.
Trump unveiled a tax plan on Monday that he said would eliminate the loophole.
"Those guys who run these companies are borrowing money very cheaply, leveraging up their companies, using it to do two things … They are going in and they are buying back stock or even worse, making stupid takeovers," said Icahn, adding some recent acquisitions have been done at a too high a price.
Much of this debt is bought via exchange-traded funds, a popular vehicle for trading baskets of bonds and stocks.
Icahn said retail investors had a false sense of security about how easy it would be to sell their holdings of such debt if the market turns.
"It's like a movie theater and somebody yells fire. There is only one little exit door," he said. "The exit door is fine when things are OK but when they yell fire, they can't get through the exit door … and there's nobody to buy those junk bonds."
Ultimately what Icahn has done is put the pieces together for anyone who might have been struggling to understand how it all fits together and how the multiple dynamics at play serve to feed off one another to pyramid risk on top of risk. Put differently: one more very "serious" person is now shouting about any and all of the things Zero Hedge readers have been keenly aware of for years.
Full video below.
»
- 114671 reads
- Printer-friendly version
- Send to friend
- advertisements -
I-CON didn't count on the Gartman Effect today...
Sounds good, but how will this benefit Icahn? Crash stock prices, then buy them all, then start in with the BS again?
god knows and i also know where the market is going....you would have to be an idiot not to know.
Mocking God is seriously business. It is a pity our leaders rarely acknowledge God. It is sad that the name Jesus Christ is mentioned in positive terms in the media. It is sad the lights are going out in America. Does anybody know the 10 commandments anymore?
"It is sad that the name Jesus Christ is mentioned in positive terms in the media."
It is??
Ladies and Gentlemen, esteemed audience,
First of all, let me rub one off at the podium. It relieves my speech stress test effectiveness.
28Sep/Sabine Lautenschläger: Reintegrating the banking sector into society - earning and re-establishing trust
blah blah, he supports donald trump, blah blah
Thanks Bush and Reagan.
You forgot to mention your Kenyan village idiot. Oops.
How about this simple tax plan? 10/20% rates, 20% kicks in at 100k...covers ALL income earned and passive, NO deductions, and applies to both individuals and corporations...no more tax exempt bonds, for example...10k personal exemption to please "progressives." Then we add a 10% VAT and eliminate all SS and Medicare taxes. So the most anyone would ever pay on capital gains or income is 20%...and complexity and compliance costs would be eliminated, and that money used for productive purposes. Not to mention the political cover that would be removed by eliminating 99.9% of the tax code. And we could furlough 90% of the IRS to boot. Couldn't liberals and conservatives both live with that? Or is it just too fricking common sense and logical.
Anything Icahn says on a public forum is worthless as he's just manouevring for his own advantage. Icahn never did a productive day's work in his life. His money was made by bluffing, use of insider information and greenmailing scams.
Corporate taxes are not too high. The countries where the inversions happen are either some tiny tropical island, or are socialist with progressive tax structures (for all you dummies- corporate taxes are low because income taxes are high.) The US is third in the world in terms of debt/revenue behind Greece and Japan. We will end up like those countries if we keep letting companies weasel out of paying their share to maintain our military, health, infrastrcuture, education and research, etc that they all rely on to maintain their businesses advantage and retain talent. We need to hold them accountable. Suckers say they will pack up and leave, BS, I'd like to see Apple try to move its corporate HQ from Silicon Valley to Ireland or Grand Cayman.
Burger King bought Canada's Tim Hortons to effect an inversion. Canada's corporate tax rate is lower than US rates. Ditto income tax.
Title: "Fed Audit Shocker: They Come from Planet Klepto" (Klepto as in thieves who can't help themselves)
https://www.youtube.com/watch?v=jt377DV2BKs (20 minutes well spent; you will need to take notes and use playback)
Worth listening and worth sharing; this channel I came across yesterday and found it definitive proof that the FED is in a real pickle and are repeating the same mistakes, maybe by intention, as they did in the 1930's leading us toward world war.
The reason it's over priced
I'll sell you this eraser for $1
You sell it back to me for $2
I sell it back to you $4
You sell it back to me for $8
You do this for forever or until nobody wants to play anymore.
Is it worth $8, no it's just an eraser.
So he makes a video to tell us all what we've all known for YEARS, and pretends to make it out to be some sort of ground breaking news or a warning? Please. Guys like him have been part of the problem!
And anyway, what part of 1987 looks like todays zero interest rate environment?
Clearly he is short. I hope the market screams higher to sort out these propaganderists.
'
'
'
Where was this dude last year, on the other side of the curve, warning us about valuations starting to become to high?