Icahn sees new Coronavirus stock market crash, he says bypassing commercial real estate

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TOPLINE

One of Wall Street’s most successful investors, billionaire Carl Icahn, warned in a recent interview with Bloomberg that stocks are overvalued, and although there are “good opportunities” to buy, he expects that the coronavirus lead to a new liquidation of the market.

HIGHLIGHTS

The economy cannot be reactivated “like a tap”, warned the famous activist investor, who at 84 has gone through decades of past financial crises, warned on Friday.

Icahn said he is not buying securities at the moment and is accumulating money because he thinks the stock market is overvalued.

Now is the time for investors to be “extremely cautious,” he told Bloomberg, saying, “In the short term, you could have big downdrafts.”

However, he said “there will be good opportunities” to buy stocks during the sale.

Icahn’s biggest trade right now is a multi-billion short position against the commercial real estate market, which he says will “explode” similarly to the 2008 financial crisis.

Icahn’s other largest holdings include industrialists like the oil refiner CVR Energy and the auto parts maker Tenneco, both of which were hit hard during the pandemic.

Crucial quote

“Today, the risk is too high for reward in many businesses,” said Icahn. With the coronavirus continuing to pose a big risk to the economy, he doesn’t see why the S&P 500 should trade at 17 times its earnings forecast for 2021. The billionaire investor has said that many “could not” be justified being given the degree of uncertainty ahead due to the coronavirus.

Surprising fact

Since mid-2019, Icahn has relied on the CMBX 6, an index of securities backed by commercial real estate receivables. This trade is often described as the “short shopping centerBecause many of the underlying loans are made to malls like malls. Icahn’s favorite bet is obviously profitable during the coronavirus, while widespread closings and store closings have led large retailers like Neiman Marcus and J.C. Penny to explore bankruptcy. Since early March, several tranches of the CMBX 6 index have plunged up to 40%. “It’s again in 2008”, Icahn said, comparing the current environment to the collapse of subprime mortgage debt during the 2008 financial crisis.

Crucial statistics

When oil prices suffered an unprecedented sale earlier this week – falling to $ 40 a barrel at one point – Icahn saw a opportunity and bought cheap oil at a time when everyone was selling. This bet seems to have paid off: oil prices have since rebounded, up almost 50% in the last three days of the week.

Tangent

Icahn has a net value $ 13.9 billion, Forbes estimates.

Key context

Following unprecedented Federal Reserve measures to support the economy and several rounds of Congressional fiscal stimulus, stocks soared – up about 30% from their troughs at the end of the crisis at the end of March. If Icahn’s predictions come true, stocks could fall further.

Further reading

Leon Cooperman: The coronavirus will “probably” change capitalism forever (Forbes)

Dow rallies nearly 300 points after Trump signs $ 484 billion relief bill for coronavirus (Forbes)

Actions Reduce Earnings Despite Rebound in Oil After Disappointment in Gilead Trial (Forbes)

Stocks rally, Dow earns more than 400 points as oil prices rebound (Forbes)

Full coverage and live updates on Coronavirus

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