Billionaire Apple investor Carl Icahn warned about potential financial calamity on the verge of hitting Wall Street and Washington in a new video titled “Danger Ahead”.
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High yield bonds were another Icahn target, warning that they really stood for junk bonds and arguing that most people didn’t really understand what they were buying.
Billionaire financier and activist Carl Icahn says that financial markets look “way overpriced” and a few investors painted themselves into in “dangerous” corners.
Icahn made his fortune in the 1980s buying stakes in poorly-performing companies and battling management to turn them around.
He says low interest rates were a flawless opportunity to borrow for modernization and expansion.
The Federal Reserve should raise interest rates because the risks of malinvestment in numerous asset classes have risen. It doesn’t exist to make individual investors money. He said he is anxious the current rate environment is “building bubbles”. “Making 1 percent or losing 30 percent?” he said. If a particular financial sector “goes sideways when interest rates are zero, it is not a reason to put millions of people out of work”, he said.
But he slams the Fed for keeping interest rates too low for too long. Stockholder payouts, in the form of dividends and stock buybacks, have been higher on average since the mid-1980s, according to Roosevelt Institute research.
Why did corporations shift focus away from pursuing long-term value and toward creating short-term stock price gains?
“If and when there is a real problem in the economy there’s gonna be a rush for the exits like in a movie theatre”, said Icahn.
CEOs are taking advantage of the system – as in the prior cycle, which led us to the Great Recession. “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”.
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Icahn asked policymakers to allow US companies to bring back an estimated $2 trillion in cash stashed overseas by lowering taxes they would otherwise be charged on that money. It found that the 15 companies that benefited most actually cut a few 20,000 jobs overall and slowed the growth of their research spending. Icahn recalled even laughing with a few bond traders saying the mafia had a “better code of ethics than you guys”.
