(Boursier.com) — Billionaire investor Carl Icahn has warned that the worst is yet to come for stock markets, even comparing current US inflation to… the fall of the Roman Empire. Those comments would almost make you smile, if Icahn weren’t generally so perceptive about the economic and financial outlook. The billionaire had thus warned that a recession “or even worse” was probably in sight for the American economy. He then compared inflation with that of the 70s, and explained: “You can’t easily put this genie (inflation) back in the bottle”.
Even after the S&P 500 fell 21% this year, some great minds on Wall Street still think stocks need to fall further. “The worst is yet to come,” Icahn, president of Icahn Enterprises, told MarketWatch at the Best New Ideas in Money Festival on Wednesday.
Recall that Icahn made a name for himself as a corporate raider on Wall Street in the 1980s, buying up unloved companies and aggressively advocating for change to improve shareholder value by appointing board members to administration, selling assets or laying off employees. The 86-year-old activist had already warned several times of difficult prospects.
The billionaire claims the Fed has driven asset prices to unsustainable levels amid the pandemic by using near-zero interest rates and quantitative easing – a policy where central banks buy mortgage-backed securities and government bonds in hopes of stimulating lending and investment. “We printed too much money and thought the party would never end,” he said, adding that with the Fed changing its stance and raising rates to fight inflation, he now thought “the party’s over”.
The “hangover” resulting from the loose monetary policies of the Fed, translates according to Icahn into vertiginous inflation, which rose 8.3% compared to a year ago in August. “Inflation is a terrible thing. You can’t cure it,” Icahn said, noting that rising inflation was one of the key factors that brought down the Roman Empire.
Rome indeed experienced historic hyperinflation after a series of emperors lowered the silver content of their currency, the denarius. The situation then deteriorated considerably after the Emperor Diocletian instituted price controls and a new coin called argenteus, with a value equal to 50 denarii.
The result of the unsustainable policies of the Roman emperors was an inflation rate of 15,000% between AD 200 and 300, according to estimates by some historians.
Icahn said inflation like this worries him so much that he would have liked to see the Fed raise interest rates by 1% on Wednesday, instead of the 75 basis point hike announced by its chairman Jerome Powell. , to ensure that price increases are contained.
But despite Icahn’s inflation fears, the billionaire investor said he managed to outperform his peers by hedging his portfolio – a strategy that uses derivatives to limit market risk and boost profits – during the stock market correction. The net asset value of Icahn Enterprises jumped 30% or $1.5 billion in the first six months of 2022, a rather surreal performance, since it was Wall Street’s worst first half since 1970!
Speaking to MarketWatch, Icahn argued that there are still stocks that look attractive in the market today, but also warned investors not to get greedy too soon. “I think a lot of things are cheap, and they’re going to get even cheaper,” Icahn said, saying companies in the oil refining and fertilizer sectors are expected to outperform the overall market going forward.