Billionaire activist investor Carl Icahn said he is betting against high-yield bonds, as he sees a bubble among companies that have overborrowed recently, and expects the dollar to keep rallying into next year.
Icahn, speaking at the Reuters Global Investment Outlook Summit in New York, said the short position against high yield is his “favorite” position right now.
“There are some strong companies with strong balance sheets … but there are a lot of companies that are extremely suspect,” he said.
In a wide-ranging interview Icahn, whose moves are widely followed on Wall Street and in financial markets around the world, talked about the mistakes he thinks central bankers have made in the past and what he thinks lies ahead in financial markets.
The 79-year-old investor said he thinks insurer American International Group, whose problems helped fuel the 2008 financial crisis, is inexpensive and he offered its Chief Executive Peter Hancock some advice: to break the company apart. The two had what Icahn called a “constructive meeting” recently.
Icahn, who is known for taking large stakes in companies and pushing for management change, took a 1.36 million share stake in AIG during the third quarter, ahead of publicly pressuring the insurer to split into three companies.
Declaring the stock of Apple Inc. to be among his favorites, Icahn said he’s in regular touch with CEO Timothy Cook and likes what the iPhone maker is doing.
Icahn said he was not betting against embattled pharmaceutical company Valeant Pharmaceuticals International . The company’s stock price has tumbled some 70 percent amid allegations of price gouging and criticisms of its business and accounting practices.
More broadly, Icahn singled out central bankers for not having lifted interest rates two years ago and allowing a bubble in credit markets to form through years of easy monetary policy.
“We have to raise interest rates, we have a bubble forming,” Icahn said. The Federal Reserve will next meet in December and markets are pricing in a roughly 70 percent probability of a small rate hike.
At the same time Icahn acknowledged that central bankers only have a limited number of tools at their disposal to stimulate growth and said that the country needs more “fiscal intervention.”
“The Federal Reserve cannot do it on its own,” he explained.
Icahn said he is long the dollar and recalled several times that he has earned billions with smartly timed bets against Europe’s common currency.
He said this year has been tough, however, where he has been caught by what he called “headwinds,” including sharply lower energy prices with oil trading at $40 a barrel. Icahn had long positions in a number of energy shares as of his most recent regulatory filing dated Sept. 30.
“When you see secular changes like you are seeing in the energy market, you just have to grit your teeth and get through it,” Icahn said. He also said the “storm is not over in the energy market.”
Since 2000, investors in his publicly held company Icahn Enterprises, a proxy for his fund which is not available to outside investors, have earned an average 20 percent return per year, Icahn said. But he acknowledged this year is not one of those winners.
“We are not badly hurt but not making money.”
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