Photo credit: Getty Images
One of Wall Street’s most accomplished investors, billionaire Carl Icahn, recently said in an interview with Bloomberg that financial stocks were overvalued. According to him, while there should be “good opportunities” to buy, the coronavirus is expected to cause a sell-off in the markets.
The 84-year-old investor, who has survived years of financial crisis, believes the economy cannot just be turned on again, “like a tap”. He said he is not buying any shares at this time, preferring to store his cash as he fears the market is overvalued. In his interview, Carl Icahn warns investors to be “extremely careful”. He also adds: “You could suffer losses in the short term.” The billionaire, however, believed that there would be “good opportunities” to invest in the market during the liquidation period.
“Today, the risk is too high”, continues Carl Icahn (whose net worth is estimated at 13.9 billion dollars per Forbes). With the coronavirus, which poses a significant risk to the economy, the investor does not understand why the S&P 500 is expected to trade 17 times the amount of its earnings estimates for 2021. He believes this “cannot” be justified , given the uncertainty caused by Covid-19 in the markets.
Since 2019, Carl Icahn has been betting against the CMBX 6, an index of real estate securities. This market is often described as the ” mall short Because a lot of the underlying loans go to shopping malls. The billionaire’s bet is also to settle his debts during the coronavirus pandemic, because the closings of businesses and stores endanger many companies, threatened with bankruptcy. Since the beginning of March, several tranches of the CMBX 6 index have plunged, some up to 40%. Carl Icahn says, “It’s like 2008,” comparing the current environment to the collapse of subprime mortgage debt during the 2008 financial crisis.
Last week, when the price of oil took an unprecedented drop, Carl Icahn saw an opportunity. So he bought oil at rock bottom prices, at a time when supply was much higher than demand. This bet seems to have paid off, because today the price of oil has rebounded, increasing by almost 50% at the end of last week.
Following unprecedented measures by the United States Federal Reserve to support the economy, and several fiscal stimulus measures from Congress, stocks were able to regain value, rising about 30% from at their lowest level in the pandemic at the end of March. But if Carl Icahn’s predictions come true, stocks on Wall Street could fall again in the months to come.
<<< Also read: Stock market: Why The Markets Are Watching A Signal From Warren Buffett >>>