Carl Icahn Has Never Been More Short The Market, Is Pressing For A Crash

Tyler Durden's picture

Three months ago, when looking at the 10-Q of Carl Icahn's hedge fund vehicle, Icahn Enterprises, L.P. (IEP) we found something striking: Carl Icahn had put his money where his mouth was. Recall that over the past year, Carl Icahn had become one of the most vocal market bears with a series of increasingly escalating forecasts. At first, he was mostly pessimistic about junk bonds, saying last May that "what's even more dangerous than the actual stock market is the high yield market." As the year progressed his pessimism become more acute and in December he said that the "meltdown in high yield is just beginning." It culminated in February when he said on CNBC that a "day of reckoning is coming."

Some skeptics thought that Icahn was simply trying to scare investors into selling so he could load up on risk assets at cheaper prices, however that turned out to be wrong when IEP revealed that as of March 31 it had taken its net short position from a modestly bearish 25% net short to an unprecedented for Icahn 149% short position, a six-fold increase in bearish bets.

However, even as other prominent billionaires piled onto the bearish side, the market soared. And then, after Q1, it soared some more to the point where as of the end of June, following the brief Brexit dump, it was just shy of all time highs (where it is now). So there was renewed speculation if Icahn had given up on his record bearish bet. So when overnight IEP released its latest 10-Q, we were eager to find out if Carl had unwound his record short, or perhaps, added more to it. What we found is that  one quarter after having a net short position of -149%, as of June 30, Icahn's net position was once again -149%, or in other words, he has once again never been shorter the market.

 

This is the result of a relatively flat long gross exposure of 174% (up 10% from the previous quarter) resulting from a 166% equity and 8% credit long, and another surge soaring short book which has  grown even more from -313% as of March 31, 2016 to a gargantuan 323% as of the last quarter, on the back of 301% in gross short equity exposure and 22% short credit.

This is what IEP added as detail:

Of our short exposure of 323%, the fair value of our short positions represented 24% of our short exposure. The notional value of our other short positions, which primarily included short credit default swap contracts and short broad market index swap derivative contracts, represented 299% of our short exposure.

 

With respect to both our long positions that are not notionalized (167% long exposure) and our short positions that are not notionalized (24% short), each 1% change in exposure as a result of purchases or sales (assuming no change in value) would have a 1% impact on our cash and cash equivalents (as a percentage of net asset value). Changes in exposure as a result of purchases and sales as well as adverse changes in market value would also have an effect on funds available to us pursuant to prime brokerage lines of credit.

 

With respect to the notional value of our other short positions (299% short exposure), our liquidity would decrease by the balance sheet unrealized loss if we were to close the positions at quarter end prices. This would be offset by a release of restricted cash balances collateralizing these positions as well as an increase in funds available to us pursuant to certain prime brokerage lines of credit. If we were to increase our short exposure by adding to these short positions, we would be required to provide cash collateral equal to a small percentage of the initial notional value at counterparties that require cash as collateral and then post additional collateral equal to 100% of the mark to market on adverse changes in fair value. For our counterparties who do not require cash collateral, funds available from lines of credit would decrease.

There was little incremental detail. One quarter ago, when asked about this unprecedented bearish position, Icahn Enterprises CEO Cozza said during the earnings call that "Carl has been very vocal in recent weeks in the media about his negative views" adding that "we’re much more concerned about the market going down 20% than we are it going up 20%. And so the significant weighting to the short side reflects that."

Considering that since then the market has soared higher on wave after wave of central bank intervention, which has brought the monthly total amount of global QE to just shy of $200 billion, after the latest QE increase by the BOE...

 

... perhaps Icahn's directional fears were displaced.  On the other hand, since Icahn has shown no interest in unwinding his bearish position, and has kept it identical to a quarter ago, one can conclude that the financier-rapidly-turning-politician, has merely delayed his bet for a day of reckoning for the S&P500.  Perhaps this time he will be right.

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Infield_Fly's picture

LMFAO!!!

 

Icahn talks his book....again.

hxc's picture

Icahn walks the walk... again.

bamawatson's picture

Icahn books his bet ....... again

38BWD22's picture

 

 

ZH Campers!

Be careful shorting the market.  A friend of mine did that during the meltdown in 2008 (oh yeah), but they changed some rules overnight and screwed him out of about $250,000 that he should have made...


scintillator9's picture

Being screwed out of what one "should have made" is INFINITELY better than taking a write off.

Been there, doing that since 2008.

 

38BWD22's picture

 

 

Well, OK, but he was still screwed out of $250,000.

The Real Tony's picture

He was probably screwed out of a million dollars. He should have made 750,000 and lost 250,000 due to all the rigging and total bullshit as the markets should have kept on tanking.

pathosattrition's picture

Wait. Wouldn't shorting CDS being going LONG the market?

38BWD22's picture

 

 

I would have to check with him, but I believe he shorted the S&P 500.  It should have been a slam-dunk $250k.

 

Doom Porn Star's picture

A lot of legitimate in the omney trades were rescinded by the exchanges/desks/FEDs back in 2008 and 2009.

Many of the issuing houses would have been bankrupted if the trades had not been broken; and the entire derivatives complex may have unwound entirely leading to an end of the EuroDollar system.

So, YES: a lot of people simply got fucking robbed in the crooked casino.  

...But, hey -the criminals at Goldman, DB, Credit Suisse, Citi, BAC, etc. all waltzed away with vast fortunes with which they still use to buy political favors and enjoy outlandish lifestyles..

RaceToTheBottom's picture

What does that say about a person who gets cheated and then returns to participate in the same crooked  game?

The Real Tony's picture

I buy deep out of the money puts for each month knowing full well someday the U.S. market will be closed for 2 weeks to a month with a re-open at least 50 percent lower. The bankers have known for ages the jig is up and the biggest fear for people is missing out on an opportunity like this one. You don't short the market you play the biggest crash of all time. That's why I get it right and Carl gets it wrong.

38BWD22's picture

 

 

The only risk I see in your strategy is if your counterparties disappear or otherwise default.

What if you cannot put it to them when the markets re-open?

The Real Tony's picture

That will never happen. I know the plunge protection team knows they'll lose a fortune trying to prop up the market when it can only fall off a cliff. I know they'll double-cross everyone except me when they short the market indexes as they fall when the big one hits. They're just like the kid with their finger in the dam and they know it.

scintillator9's picture

In regards to the "the markets" being closed two weeks to a month, one might want to look back a century to when it closed for a slightly longer time, namely from July 30 to December 12, 1914.

https://www.globalfinancialdata.com/gfdblog/?p=2750

And, one should not forget about how it may be difficult to transact any trades if another banking holiday happens:

http://www.federalreservehistory.org/Events/DetailView/22

"For an entire week, Americans would have no access to banks or banking services. They could not withdraw or transfer their money, nor could they make deposits."


 

 

zagzigga's picture

Given how long this bs has been going on, chances of something like that appear non existent. The central banker driven con game could last an entire generation. I have a few shorts and some gold miner stocks. I am seriously considering exiting all short positions whenever the next pullback happens and just keep my miners. Long gold seems like the only viable contrary bet in this freak show of a market.

Salsa Verde's picture

I hit a long-shot in 2008 when the algos were going bonkers and caught a %25 bounce that triggered a sell order; I was stoked!  The trade was reversed and the brokerage told me to pound sand citing some techno babble 'error.'  I cashed out all positions that week and have not bought any equities since.  Fuck the rigged Casino.

38BWD22's picture

 

 

We are not in The Club.  

TradingTroll's picture

Sometimes I  don't short for that reason if the trade isn't going to be largely profitable. I made two exceptions the past year: short Dow on Aug 24/15 and short again Dec 31/15. Both massively profitable and all based on technicals. Two trades a year and enough to live like a king.

 

But the fear of manipulation is there. On the Aug 24 trade the exchange involved rule 48 on quotes and lost half my profits as market makers showed bad quotes.  But if you let the fact that a 2000% return in <24hrs got cut to 1000% so you aren't shorting, well then you were never rely a playah.

 

Anyway, a big drop is probably coming but we may crest 20,000 Dow first. Hillary's top.

We should have had a big downdraft by October.

hxc's picture

You're a smart motherfucker and definitely have your head on straight, but for god's sake... don't scare people out of fighting the system with the fascist/communist feral reserve's own idiotic rigged markets. Bet on volatility, 3x inverse ETF's based on inflated paper assets, bet on 3x etf's based on assets with staying power, any of that is good once the paper hits the fan. In the meantime, it's anyone's guess, but don't sit there and pretend the markets aren't heading towards a bad fucking time.

 

I get happier when PM's get cheaper since I know where they will be in a few years... or even a year. Wait for another hike and a jan/feb '16 episode and pm's go through the roof while cb's scramble

slaughterer's picture

Does Icahn give any reason why he is shorting aggressively?  There is really no thesis here except a Biblical "day of reckoning"--for what? 

NoVa's picture

that's right, Jewish people are still looking for a Messiah - duh!

 

junction's picture

Icahn looks ready to stroke out.

mcl2177's picture

Does he have to? Guy makes money hand over fist

hxc's picture

Almost forgot this was a CAPITALIST site when i read those idiotic comments you easily rebuked...

Paul Kersey's picture

Trump also told Americans that the market was going to tank. Trump had announced, at one time, that he had offered Icahn the Treasury Secretary position. At this time, however, TPTB will do whatever possible to keep the market from falling, at least until the election is over,because the banksters and military profiteers are pushing hard a third term for the Clintons, and, by proxy, for Obama.

bada boom's picture

I think Trump is partly covering his ass.  You know if he gets elected they will take the market down.

NumberNone's picture

Can you imagine the shitstorm Trump would have if Icahn was on his cabinet? Headline ''Trump Team Short Market, Collapse Imminent If Elected'. Actually that might get him some votes.

RaceToTheBottom's picture

There was corruption before Obama and there will be corruption after him.  By focusing on the Obama, you lose site of the real mechanism here. 

Corruption is the norm, not the exception.

Justawhoaman's picture

Remember the trend that if the market tanks, the incumbents lose.  I go with Icahn... let the market tank and the Clintons stay in Chappequa!

j0nx's picture

Is this the Dos Equis guy?

mary mary's picture

I want to see which way Congresswoman Chu is positioned today before I decide.

Philo Beddoe's picture

Over a desk with the 3 ball in her mouth. Or, were you referring to something else? 

knukles's picture

... No I had  to come back and erase it ...
Just way below even my standards.

Philo Beddoe's picture

Standards? Come on. We had one guy reffering to Hillary as Bill's cum dumpster earlier today. The bar has been set. Beat that. 

Jerky Miester's picture

Oh great!  I'll have to drink a fifth of Tanqueray to scrub that vision.  Thanks a pant load!

Croesus's picture

@ Philo...my God man, are you trying to get me sick? 

Hillary Clinton & cum dumpster should never be used in the same sentence. Who would possibly ever stoop that low? I've woken up next to a 'surprise' here and there...but damn. 

For you players, who know what "hoggin" is....and have "won the money".

maskone909's picture

Bonds are starting to sell off. This will panic soon

Paul John Smith's picture

Don't be stupid - they'll just use bonds to buy bonds.

RaceToTheBottom's picture

Eventually, they will have to sell Yellowsotne National park.

It will be a "I will buy yours, if you buy mine" situation....

buzzsaw99's picture

"we’re much more concerned about the market going down 20% than we are it going up 20%. And so the significant weighting to the short side reflects that."

i feel the exact reverse way.

The Real Tony's picture

Good luck after the election is over. I hope you're still there for me because I'll be 100 percent short.

buzzsaw99's picture

i'm not going anywhere. you can borrow my shares if you like. ;)

The Real Tony's picture

Thanks the first one I'm shorting is Teck Corporation up in Canada at the end of this September.

GunnerySgtHartman's picture

I think the crash we're going to see will be far, far more than 20%.  Bought more PMs today.

Delving Eye's picture

I bought more TP. Lots more. And coffee. When the endtimes come, they'll be worth more than gold.