
Carl Icahn is Betting on a Stock Market Crash - yonibot
http://fortune.com/2016/05/10/carl-icahn-crash-stock/
======
ddeck
He may well be right. If you say it often enough, eventually you will be.

2011:

 _> You’ve got to be myopic if you’re not at least concerned that there might
be a major correction_ [1]

2013:

 _> Activist investor Carl Icahn on Monday said there was a chance the stock
market could suffer a big decline, saying valuations are rich and earnings at
many companies are fueled more by low borrowing costs than management's
efforts to boost results_ [2]

2014:

 _> Carl Icahn says 'time to be cautious' on U.S. stocks_ [3]

 _> Carl Icahn Reiterates "We Are In A Major Asset Bubble"_ [4]

2015:

 _> Icahn warns of potential looming catastrophe...Icahn said he's "more
hedged now than I've been in years."_ [4]

[1]
[https://next.ft.com/content/c9612302-4c09-11e0-82df-00144fea...](https://next.ft.com/content/c9612302-4c09-11e0-82df-00144feab49a)

[2] [http://www.reuters.com/article/us-investment-summit-icahn-
id...](http://www.reuters.com/article/us-investment-summit-icahn-
idUSBRE9AH11720131118)

[3] [http://www.reuters.com/article/us-investing-icahn-
exclusive-...](http://www.reuters.com/article/us-investing-icahn-exclusive-
idUSKBN0FF2DV20140710)

[4] [http://www.zerohedge.com/news/2014-08-12/carl-icahn-
reiterat...](http://www.zerohedge.com/news/2014-08-12/carl-icahn-reiterates-
we-are-major-asset-bubble)

[5] [http://www.cnbc.com/2015/09/27/-of-potential-looming-
catastr...](http://www.cnbc.com/2015/09/27/-of-potential-looming-
catastrophe.html)

~~~
partiallypro
Yeah...the problem with your analysis is that Icahn was never really "short"
the market when he said those things. He owned big momentum stocks, as a
matter of fact, Apple, Netflix, etc. Now he has a massive short position in
the market, his money is now where his mouth was/is.

The first time in your analysis that he actually said he was hedging, the
market took a nose dive of 20%. I think his advice is worth warrant,
especially when you have people like Bill Gross saying similar.

It's of my opinion that we are in an asset bubble, but we could have a "blow
off top" before we really see what happens. Stock declines also generally
occur during election years after a 2 term President, so it's a generally good
bet for a correction at the very least. But, if I really knew what was going
on, I'd be rich.

~~~
rsync
"It's of my opinion that we are in an asset bubble, but we could have a "blow
off top" before we really see what happens. Stock declines also generally
occur during election years after a 2 term President, so it's a generally good
bet for a correction at the very least. But, if I really knew what was going
on, I'd be rich."

What's missing right now is the taxi driver sentiment ...

I don't hear inexperienced investors talking about playing the market or about
average folks day trading. Yet.

~~~
rjett
That's because they're all starting start ups. Day trading is so early 2000s.

~~~
RandomBacon
There was an ad that recently played on the radio for some service that will
help you take your money from a retirement account to fund a family member's
start-up.

I haven't heard it recently, so hopefully some people had enough sense to pull
it. Investing retirement money in a family member's start-up is one of the
worst ideas I've ever heard of.

------
lujim
To repeat the well worn quote from John Maynard Keynes. "The market can remain
irrational longer than you can remain solvent." This is especially true in the
post financial crisis world of financial engineering, quantitative easing, and
zero/negative interest rates. This market will come down hard at some point,
but shorting it has been a losing proposition 99% of the time.

~~~
cloakandswagger
I find it somewhat poetic that Keynes is the author of that often used quote,
as the irrationality of our current market is a direct result of the abuse of
his own theories.

~~~
bwanab
Not really. Keynes prescribed fiscal stimulus. We are currently engaged in a
very large experiment on the limits of monetary stimulus.

~~~
cloakandswagger
Constant demand side stimulus has been de facto US economic policy since the
Great Depression.

------
ikeboy
I don't see how this article adds anything over its source
[http://www.zerohedge.com/news/2016-05-09/historic-150-net-
sh...](http://www.zerohedge.com/news/2016-05-09/historic-150-net-short-
position-carl-icahn-betting-imminent-market-collapse), that article has
strictly more information.

Can the url be changed?

~~~
cloakandswagger
HN has an irrational aversion to ZH, with some posters here suggesting it
should be banned as a source entirely.

~~~
ikeboy
If it should be banned, then any article sourcing only from it should be
banned as well. That's an obvious loophole.

------
Matt_Mickiewicz
He may be onto something. There's a huge and widening gap between GAAP vs.
Non-GAAP earnings:
[http://www.zerohedge.com/sites/default/files/images/user5/im...](http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/02/24/S%26P%20PE%20GAAP%20non%20GAAP_0.jpg)

U.S. corporations have issued more than $9.9 trillion in debt since 2008. Last
year, corporations issued a record $1.5 trillion in debt.

76% of the companies in the S&P 500 bought back their own shares ...most
companies used debt to pay for these buybacks, in a clever move of financial
engineering to boost EPS.

To top it off, we've been in a multi-quarter earnings recession for the S&P,
and total retail sales growth has dipped below 3% which has always correlated
with a recession:

[http://i0.wp.com/bawerk.net/wordpress/wp-
content/uploads/201...](http://i0.wp.com/bawerk.net/wordpress/wp-
content/uploads/2016/04/Retail-Sales-since-1968-w-recession-threshold.jpg)

~~~
tostitos1979
The stock market seems sane when compared to real-estate prices in major
cities. In Canada, people are mostly pointing fingers at foreign buyers.
People are generally ignoring the elephant in the room - lowest rates in a
generation. Despite being in the 1% of wage earners, we personally are so
badly screwed ... we'll never be able to afford property in hour home towns
unless there is a 50% crash. I don't think that is likely at all ... so we're
(and most of our friends who missed the buying opportunities of 2011-12) are
figuring our what remote town to move to so we can earn some fraction of our
salaries but have a shot at home ownership. As rational people, we know we
cannot afford million dollar homes if interest rates ever normalize. In
Canada, you cannot get mortgages longer than 10 years ... so it is very grim
for us. People who don't know math are raking it in while we are suffering in
no uncertain terms. But no one seems to care.

~~~
mttddd
I am just hoping self driving cars come out in the next 5-10 years and
hopefully that expands the geographic area you can reasonably live in and
still commute to work.

~~~
tostitos1979
The LA to SF bus comes to mind. Seems like a miserable existence to spend so
much time couped up in a car but the self-driving option will allow more
productive use of time.

~~~
Domenic_S
Traveling long distances is a pain even by transit -- mobile data needs to
catch up first. Dropped calls, dropped vpn connections, slow speeds... it
sounds great to work during your commute until you have to actually do it.

------
cm2187
My favorite chart is to superpose the S&P for the past 10 years with the size
of the Fed balance sheet. It's almost a perfect match. What is certain is that
the Fed B/S isn't going up anymore (but it isn't reducing either). I don't
know if we are heading toward a crash, but unless we have QE4, stocks are
certainly not going up.

~~~
lujim
Negative interest rates and company stock buy backs might be able to allow
markets to keep going for a while. Negative rates cause investors and
sovereign wealth funds to pour money into equities. The Bank of Japan owns 50%
of the ETFs in Japan. That should scare people.

Stock buy backs artificially inflate reported company earnings. Companies take
on cheap debt to buy back shares of their own company (at historically high
valuations) to keep investors happy and beat earnings estimates.

This game of musical chairs can run for a while.

~~~
shostack
And analysts aren't wise to this practice? Wouldn't the market have priced in
that charade already?

~~~
lujim
Everyone knows it's happening, the real question is whether it is a charade or
not. Buy backs are a legitimate practice for companies that want to reward
shareholders and gain a bigger chunk of their own business. Nothing sketchy
there. The question is why would a company like Nike want to buy back it's own
stock at historically expensive valuations rather than use that money on new
products or to expand their market share? Are they doing it to gain a bigger
piece of their own business, or are they doing it to juice earnings because
top line sales are decreasing and they need to beat earnings expectations to
keep the share price up? The jury is still out.

------
S_A_P
Icahn thinks the market will crash, enters a short position. Then lobbies the
media to help it crash.

~~~
shostack
I wonder how much the media practically begging for it to crash could create a
self-fulfilling prophecy.

------
11thEarlOfMar
The analysis needs to factor overall market earnings [1]. It is more level-
headed to look at the S&P 500 P/E ratio, which does show a historically over-
valued market, though not dramatically over-valued at this time [2]. S&P 500
overall earnings hit all-time highs in 2013 and 2014, but have fallen back
somewhat in 2015.

So it's a pretty safe bet to short, if that is one of your investment tools.
But I don't think you'll really make a killing, unless earnings decline
substantially. I've chosen to just divest stock-based investments and increase
cash somewhat, and then cherry-pick value in dividend stocks.

[1]
[http://www.multpl.com/s-p-500-earnings/table](http://www.multpl.com/s-p-500-earnings/table)

[2] [http://www.multpl.com/](http://www.multpl.com/)

------
snake_plissken
Not a bad idea. Greece and its "debts" will rear their heads again this
summer, as there are some pretty significant payments due in June and July:
[http://www.ft.com/ig/sites/2015/greek-debt-
monitor/](http://www.ft.com/ig/sites/2015/greek-debt-monitor/). Just the spark
un-needed in global markets where it seems everyone is in that pre-dive mood
of complacency.

The continuing question is: do you play chicken with the central banks of the
world?

~~~
tinkerrr
Closer to the US, don't forget the debt default by Puerto Rico:
[http://www.bbc.co.uk/news/business-36184250](http://www.bbc.co.uk/news/business-36184250)

~~~
snake_plissken
Excellent point, I totally forgot about that. $2 bils due July 1.

------
Hermel
And previously, he was betting on AAPL to raise to 200$.

To be fair, the coming Trump victory might not be priced in yet. Also, Brexit
could bring some turbulences.

~~~
Unklejoe
How do you think a potential Trump victory will affect the market, in terms of
short term immediate effects? (I'm actually asking, not being sarcastic).

It's hard for me to predict in this case, but if Bernie were to win, I kind of
expect a temporary downturn as people panic due to Bernie's promise of
attacking "wall street".

~~~
notahacker
He favours a "temporary" ban on nearly a quarter of the world's population
entering the US, delays to company's ability to hire anyone from overseas and
a trade war with China... and also talks a lot about attacking Wall Street
though without appearing to have any concrete policies to deal with it.

I don't think an unfunded plan to cut corporation tax is really going to tip
things in his favour.

~~~
lintiness
uh, his wall street plan is to get rid of carried interest and increase taxes
on fund managers. i think we found some funding a corporate tax cut (if that's
in fact what he's proposed).

~~~
auntienomen
He also proposes taxing _all_ income from pass-through vehicles (such as
private equity funds, VC funds, and hedge funds) at 15%. Trump may eliminate
the carried interest loophole, but he does so by lowering taxes until the
loophole is irrelevant.

I consider this clear proof that he thinks his voters are chumps.

------
yonibot
To badly paraphrase the words of Jack Bogle - "I don't know anyone who can
successfully time the market, and I don't know anyone who knows anyone who can
either."

------
jobu
_" In April, Icahn argued that stock prices have been pushed artificially high
by low interest rates, but that economic fundamentals could not support those
prices."_

That tells me that his bet is actually that the Fed will keep raising rates,
which would likely push down stocks.

------
MicroBerto
One thing not yet discussed here is the demographic profile of the US: Baby
Boomers are now retiring.

Over the next 20 years, they will be drawing down on their retirement
accounts, putting slow yet constant negative pressure on the market.

Japan has had similar pressure and it is one thing that contributed to the
Lost Decade.

~~~
__derek__
I wonder what kind of effect that will actually have, given the stark divide
in retirement preparations. On the one hand, we have a lot of people who have
little retirement savings, who play a small role in the markets and will delay
retirement (or just never do it). On the other, we have some people with well-
planned retirement accounts. I would not be surprised if a fair number of the
latter have planned to live only on the proceeds of their investments. That
will introduce some bias towards dividends over reinvestment, I suppose. This
is speculative, granted.

------
pmorici
Not really surprising there are a lot of reasons to think there will be a
market downturn the thing that seems to be a big question mark is will/can it
happen with the fed's current policies.

------
nikdaheratik
The guy is quotable, but I don't understand why anything Icahn says about the
market is actually newsworthy. He never says or does anything that isn't about
benefiting the interests and net worth of Carl Icahn (inc.). May as well be
quoting press releases from SCO lawyers about software patents and Unix.

------
rcarrigan87
This article feels like some pretty lazy reporting. Icahn's strategy, I'm sure
is much more nuanced than - "The market will crash."

------
imaginenore
Market going down 20% is what, going back to mid 2013 levels? Hardly a scary
crash.

~~~
TheOtherHobbes
Look up how far stocks fell in 1929.

Most corrections are 20-40% - which is bad enough.

But every so often you get something much, much worse.

~~~
charlesdm
The fed has shown they're not willing to let that happen. They'll start up the
printing press again, then.

Quantitative easing has effectively been the biggest gift in the last 50 years
to the wealthy.

~~~
aminorex
Very true, but... Eventually all that money shows up as inflation. Which
devalues the SPX. The wealthy have been net sellers of SPX for over a year
now. It is only the collapsing velocity of money which has prevented an
inflationary tear so far...but that has a hard limit at zero ( unlike interest
rates) which can only be reached by either obliteration of technological
society or a reorganization of economic activity to be uncorrelated with money
flows

~~~
charlesdm
If you believe that, then you would do well to swap your dollars for some
other currency used by countries with low inflation and a more prudent fiscal
policy.

------
stefap2
"-150% Net Short Position"

What does it mean?

~~~
1123581321
For example: you have $1000, borrow another $500, and use the whole $1500 to
short Apple.

Icahn has a much more complex position, but essentially, he's borrowing and
using derivatives to get a $1,500 return for every $1,000 drop in value.

------
blisterpeanuts
What goes up, must come down. The stock market is cyclical and a correction is
bound to happen. I don't see why a Trump presidency would be bad for the
market. Maybe it would take a short term dive because of his stance on
protectionism, but long term it would probably rise because of his goal to
repatriate dollars and stimulate domestic manufacturing. Right now, it's the
uncertainty about Senate and presidential outcomes that might spook investors.
Even the Supreme Court is in play. We live in interesting times.

~~~
hellogoodbyeeee
Protectionism would send the market in a tailspin down. You should read some
more about the great depression and its causes

~~~
blisterpeanuts
Yes, the stock bubble burst, and Hoover's attempt to impose tariffs backfired
badly.

I doubt that Trump would implement protectionism. His rhetoric generally
points to leveling the playing field rather than simply banning foreign
imports.

He talks a good talk about screwing the Chinese, but when push comes to shove
there's nothing he'd be able to do about the trade imbalance.

~~~
dragonwriter
> His rhetoric generally points to leveling the playing field rather than
> simply banning foreign imports.

His rhetoric is consistently vague, which allows people to read what they want
into it.

> He talks a good talk about screwing the Chinese, but when push comes to
> shove there's nothing he'd be able to do about the trade imbalance.

There's plenty he could do about the trade imbalance; for instance, net
imports necessarily must be balanced by a capital inflow; obstruct the capital
inflow and you prevent the trade imbalance.

Of course, doing so would likely be disastrous, but its not impossible.

