Billionaire investor Carl Icahn warns ‘the worst is but to come back’ for traders and compares U.S. inflation to the autumn of the Roman empire

All through 2022, Wall Road has repeatedly warned traders {that a} recession might be on its approach.

From JPMorgan Chase CEO Jamie Dimon to former Federal Reserve officers, the world’s prime financial minds have pointed, virtually in unison, to the storm of headwinds dealing with the worldwide financial system and expressed fears in regards to the potential for a severe downturn.

Within the U.S., shoppers are grappling with close to 40-year-high inflation and rising rates of interest, all whereas the world struggles to deal with the conflict in Ukraine, the European vitality disaster, China’s COVID-zero insurance policies, and extra.

And even after a greater than 21% drop within the S&P 500 this 12 months, Wall Road’s finest minds nonetheless assume shares have additional to fall.

“The worst is but to come back,” Carl Icahn, who serves because the chairman of Icahn Enterprises and boasts a internet price of $23 billion, informed MarketWatch on the Greatest New Concepts in Cash Competition on Wednesday.

Icahn made his title as a company raider on Wall Road within the Eighties, shopping for up unloved firms and aggressively advocating for change to enhance shareholder worth by appointing board members, promoting property, or firing staff.

Even at 86, Icahn stays one among Wall Road’s most revered minds, and this 12 months he has repeatedly warned the U.S. financial system and inventory market are in bother.

The investor argues the Federal Reserve boosted asset costs to unsustainable ranges amid the pandemic utilizing near-zero rates of interest and quantitative easing—a coverage the place central banks purchase mortgage backed securities and authorities bonds in hopes of spurring lending and funding.

“We printed up an excessive amount of cash, and simply thought the celebration would by no means finish,” he mentioned, including that with the Fed switching stances and elevating charges to battle inflation, he now believes “the celebration’s over.”

The hangover from the Fed’s unfastened financial insurance policies, in line with Icahn, is sky-high inflation, which rose 8.3% from a 12 months in the past in August.

“Inflation is a horrible factor. You may’t treatment it,” Icahn mentioned, noting that rising inflation was one of many key elements that introduced down the Roman Empire.

Rome famously skilled hyperinflation after a sequence of emperors lowered the silver content material of their foreign money, the denarius. The state of affairs then dramatically deteriorated after Emperor Diocletian instituted value controls and a brand new coin referred to as the argenteus, which was equal in worth to 50 denarii.

The results of Roman emperors’ unsustainable insurance policies was an inflation price of 15,000% between A.D. 200 and 300, in line with estimates by some historians.

Icahn mentioned that inflation like this worries him a lot that he would have preferred to see the Federal Reserve increase rates of interest by a full 1% on Wednesday, as a substitute of the 75-basis-point hike that Chair Powell introduced, to make sure value will increase received’t stick round.

However regardless of Icahn’s inflation fears, the billionaire investor mentioned he has managed to outperform his friends by hedging his portfolio—a method that makes use of derivatives to restrict market threat and improve income—through the market downturn.

Icahn Enterprises’ internet asset worth jumped 30% or $1.5 billion within the first six months of 2022.

On Wednesday, Icahn argued that there are nonetheless shares that look interesting available on the market right now, however he cautioned traders to not get grasping too quickly.

“I feel a number of issues are low-cost, they usually’re going to get cheaper,” Icahn mentioned, arguing that firms within the oil-refining and fertilizer companies ought to outperform the general market shifting ahead.

Wednesday’s warning for traders wasn’t the primary from Ichan this 12 months.

The billionaire warned again in September {that a} recession or “even worse” was seemingly on the best way for the U.S. financial system and in contrast right now’s excessive inflation with that of the Nineteen Seventies, arguing the Fed will wrestle to regulate rising client costs.

“You may’t get that genie again within the bottle too simply,” he mentioned.

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