Wall Street guru Carl Icahn warns that “the worst is yet to come”

Carl Icahn speaks at the World Business Forum in New York, 2014. Photo: AP/Mark Lennihan, File

Carl Icahn speaks at the World Business Forum in New York, 2014. Photo: AP/Mark Lennihan, File

  • He believes that the recession is the key to the current bad moment: “It cannot be cured”

  • According to him, the Fed should be more aggressive to try to stop it

  • He sees opportunities in the market: “There are many cheap things”

Carl Icahn, a Wall Street legend with a net worth of almost US$18 billion, has been very pessimistic about the future development of the US economy this week, during the festival of financial innovation Best New Ideas in Moneyfrom MarketWatch.

While his company Icahn Enterprises has had a strong 2022 amid so much uncertainty – with its net asset value rising 30% in the first half – the 84th richest man in the world, according to Forbes’ real-time ranking, warned investors that “the worst is yet to come.”

As expected, MarketWatch reviewed, Icahn argued that inflation plays a crucial role in the market downturn. “It’s a terrible thing,” the 86-year-old guru said, alluding to the fall of the Roman Empire: “It can’t be cured.”

“Party is over”: Icahn wants the Fed to be more aggressive

It is clear to Icahn that part of the blame lies with federal outlays for the current fiscal problems in the US. “We printed too much money and thought the party would never end. And the party is over,” he said.

Although he backed the Fed’s anti-inflationary move to raise interest rates by 75 basis points, Icahn also thinks the Fed could have been more aggressive and would have personally supported even a 100-point hike.

Since March, Icahn had been skeptical of the Fed, saying in an interview with CNBC that he wasn’t sure the agency could engineer a “soft landing” to address high inflation. He also said that, to hedge against a possible recession, he bet against shopping malls and commercial real estate.

The bright side: there are still shares to buy

In his remote address on Wednesday, the billionaire and former adviser to Donald Trump based his defeatist view on the current state of the stock market, which experienced its worst first half of the year since the 1970s.

However, Icahn, who has been in the finance business since 1961, also spoke of areas of opportunity for investors and recalled that hedging strategies were the key to his success. A hedging strategy reduces the portfolio’s exposure to market volatility by taking positions that have the net impact of reducing risk.

The Princeton philosophy graduate stressed that investors can still find stocks to buy. “I think a lot of things are cheap and are going to be cheaper,” he said, pointing to companies in the oil refining and fertilizer businesses.

Among those trustworthy companies he recommended watching closely is Texas-based CVR Energy. On Wednesday, CVR shares were trading at US$28.89.

Nasdaq reported on Wednesday that investors should also take into account any recent changes in analyst estimates for CVR Energy, because they help show the changing nature of short-term business trends.

Carl Icahn during an event with investors organized by CNBC.  (Photo: Heidi Gutman/CNBC/NBCU Photo Bank via Getty Images)

Carl Icahn during an event with investors organized by CNBC. (Photo: Heidi Gutman/CNBC/NBCU Photo Bank via Getty Images)

Businesses need to be better managed

As an active shareholder — using a stake in a corporation’s equity to put pressure on its management — Icahn underscored the idea that today’s businesses must be better managed. “You don’t have to hold management accountable,” he said.

As for the recently passed Inflation Reduction Act and its goal of reducing carbon emissions, he said he understood the need to curb carbon, but thought the legislation went “too far.”

For the employer, the measure can be compared to the situation of a sick patient who is prescribed too many drugs. If you “take 100 pills at a time, you die,” he said.

Carl Icahn made headlines in April, when Forbes Spain compared him to a “predator that stalks its prey when it is unprepared”, famous for profiting from companies, “by blowing them up from the inside”.

“If Warren Buffett is a clear value investor, who consistently beats the S&P 500 most years with a clear philosophy, Icahn benefits from focusing on a strategy based on a kind of war of attrition,” says the magazine.

His name also sounded at the beginning of the year, when it became known that he was leading a power battle for two positions in the direction of McDonald’s. The fast food chain confirmed that Icahn nominated two people after criticizing the company for the use of gestation crates for pigs in its supply chain.

McDonald’s initially pledged to end the practice by 2022, but extended the commitment to the end of 2024.

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