When Carl Icahn, billionaire maverick investor speaks, the world listens. And Carl Icahn has spoken. He recently called the U.S. high yield bond market ‘overvalued’, sending investors into a tizzy. High yield bonds are considered risky because they invest in high risk securities (those that have not been rated or have a below investment grade rating). In return, they offer a high interest rate. Many of these bonds are also called ‘junk bonds’.
On last Saturday’s episode of Wall Street Week, Carl Icahn said that the U.S. junk bond market was even more dangerous than the stock market at current valuations. He called the market ‘ridiculously high’ (‘toxic’ in financial parlance) and said that he was amazed that money was still pouring into the sector. He said that when the market begins to go south (which will happen soon) people will start running for the exit. Incidentally, the high yield market has the highest returns of any other fixed interest financial instrument till now.
Icahn said that he has taken already taken precautions for when the market falls
Icahn said that he is very worried about the stock market and has already hedged himself in preparation for when the markets begin to fall. He also said that he did not agree with BlackRock’s Larry Fink who is critical of companies that buy-back stocks and investors who buy with a short term perspective. Icahn said that while he agrees with Fink’s estimation of ‘pump and dump’ investors, he did not think that CEOs should invest in companies as a long term strategy.
He also likened Apple Inc. (NASDAQ: AAPL) to the famed racing horse, Secretariat. He said that a company like Apple emerges once in 50 years and regretted that he had not bought more stock in the company, when the valuations were still affordable.
Icahn’s outlook for the energy sector
On the energy sector, he said that his outlook was negative for the next 3-4 years at least. He also cautioned that the sector could get worse before it could get better. On President Obama, Icahn said that for the most, President Obama’s policies have been good but added that they don’t like him in the Hamptons (meaning the rich). He doesn’t want to see Obama as President again but did not think that he had done a bad job.
Icahn has often been called a ‘corporate raider’ for his aggressive takeover tactics. When quizzed about this infamy, he said that he had never considered himself as a part of any mix, not now or when he was studying at Princeton University (Icahn graduated with a degree in Philosophy from Princeton University, just like George Soros, who is also a Philosophy graduate).