Tags: Carl Icahn | Danger Ahead | Economy | Invest

Icahn: Investor, Pension Funds 'Buying Some Very Dangerous Securities'

Icahn: Investor, Pension Funds 'Buying Some Very Dangerous Securities'
Carl Icahn (AP)

By    |   Thursday, 01 October 2015 11:01 AM

Iconic activist investor Carl Icahn made an extended appearance on CNBC’s Fast Money Halftime Report, hosted by CNBC's Scott Wapner, to respond to questions in order to explain the ideas he presented in his video “Danger Ahead,” which has received considerable comment every since he posted it on his website.

Icahn declared that given the current state of markets, the video is part of a larger plan to speak out more frequently on issues like bubbles caused by Fed policy and dysfunction in Washington, and he vowed, “I intend to do more of this.”

Offered time to explain why he made the video, Icahn said it started with talking more about stocks he considered “no brainers,” like Apple (AAPL). He noted that a lot of work goes into the determination that a given stock is so compelling that is “ridiculously underpriced.” He mentioned Apple and Netflix (NFLX) as examples.

Next, Icahn recalled that in 2007 he became concerned that “in certain instances, the public could get badly hurt,” but he thought this was “to no avail, and I never really got it out.”

So, he decided to be more forceful this time, because he sees another bubble, “and the middle-level investor, and even some of the pension funds, are really buying some very dangerous securities.” 

This writer would add a point that is often lost, which is that securities are often sold to move risk from the seller’s balance sheet to a buyer who may be less informed and less able to manage risk, and the product, often “innovative” and without a track record, may be suited to a particular circumstance, such as the Fed’s ZIRP policy, which has caused investors to reach for yield. However, over time, as conditions change, inherent flaws in the product may bite the investor.

Wapner referred to criticism that perhaps Icahn is “overly alarmist” about issues such as high-yield securities, a $2.2 trillion market he calls “way overdone,” and that his warnings benefit his own positions.

Icahn responded that people should be more concerned if his views did not coincide with his positions; for example, if he touted Apple but didn’t own the stock.

When Wapner asked bluntly whether we are in a bear market, Icahn demurred, insisting that he doesn’t know what a bear market is.

This writer would refer to indicators based on Dow Theory, moving averages of new highs versus new lows, and the observation by technicians like Carter Braxton Worth that levels that used to be bases for upmoves have turned into resistance, so that dips are no longer buying opportunities, but rather, investors should sell into any strength. When turns occur, commentators will inevitably disagree as to whether a turn has occurred.

Icahn went on to say that, “Earnings are misstated; it’s sort of a mirage,” the analysts have “drunk the Kool-Aid.”

He complained that these analysts say, “Forget GAAP.”

This writer would suggest that the widespread use of non-GAAP devices like EBITDA calls into question whether GAAP really is “generally accepted” by some companies and sell-side analysts.

Icahn concludes that, “The joyride is over,” and he worries that liquidity for junk bonds could dry up.

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Robert-Feinberg
Carl Icahn made an extended appearance on CNBC’s Fast Money Halftime Report, hosted by CNBC's Scott Wapner, to respond to questions in order to explain the ideas he presented in his video “Danger Ahead,” which has received considerable comment every since he posted it on his website.
Carl Icahn, Danger Ahead, Economy, Invest
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2015-01-01
Thursday, 01 October 2015 11:01 AM
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