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What We Learned from Carl Icahn’s Video on Dangers in the Economy and Stock Market

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Activist investor and billionaire Carl Icahn is one of the Street personalities that is always on the radars of investors and often takes his opinions public either via interviews or directly via social media. Earlier today, Mr. Icahn released a video on his website, in which he reiterated some of his concerns regarding the stock market and the economy. The video, titled “Danger Ahead”, is an outline that presents the inefficiencies of both the current U.S government and the activity of the major companies in the U.S, from Icahn’s perspective.

Carl Icahn as viking

“I want to speak out now, because (I know this may sound corny) I grew up in the streets of Queens. I love this country and I feel so strongly about the dysfunction that’s been going on both in Washington and the boardrooms of corporate America,” Icahn said.

Mr. Icahn also didn’t miss the chance to express his support for the 2016 presidential candidate Donald Trump, saying that even though he disagrees with him on some issues, the U.S needs “a president that can move Congress.” The investor added that one of the main problems of the current legislation is the “carried tax loophole”.

“We need government to get out of this gridlock, to get out of this dysfunction. A quintessential example is repatriation, which to translate means that there is $2.2 trillion in profits that American companies have earned in Asia, South America and Europe. Companies are domiciled in this country, but make goods in another country, produce and sell them there, nothing to do with the United States.”

The fact that companies don’t want to bring their money back to the U.S is because it’s unfair to them to pay a double tax. In this way, Mr. Icahn considers that the repatriation of capital could be very beneficial, even if the taxes paid are much smaller or even abolished altogether, because this capital would lead to the creation of jobs and more investment in the U.S.

Carl Icahn
Carl Icahn
Icahn Capital LP

Another issue that Mr. Icahn mentioned is the low interest rate environment. The companies benefit from cheap borrowing and instead of investing this money in new equipment or in improving the efficiency of their workers, they acquire other companies in order to show investors and analysts on the Street that they have higher earnings and increase the stock price, a move that the investor calls “almost perverse”. In this way, the earnings that companies are currently reporting are often artificially inflated. The companies provide their guidance, while excluding stock compensation, restructuring costs, intangible assets, and takeover costs.

“It’s like taking a drug: borrowing money very cheaply, taking over another company. You feel good [.,.]”

Stock buybacks is another problem currently faced by corporate America, according to Mr. Icahn. Buybacks provide a “short-term fix” and many companies that engage in large buyback programs should not be doing them at all, because it weakens the balance sheet. However, Mr. Icahn added that it is not the case for companies like Apple Inc. (NASDAQ:AAPL), in which Icahn Capital is one of the largest shareholders. Apple has around $200 billion in cash and has very low debt, so it should be buying back stock. On the other hand, companies that Mr. Icahn is shorting, often trade at over 30 times earnings and have “no net worth” because of buybacks. Those stocks grow mainly on the back of higher reported earnings per share, but their GAAP earnings haven’t actually grown.

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