(Bloomberg) Carl Icahn isn’t buying stocks right now. He’s hoarding cash, shorting commercial real estate and preparing for the coronavirus to wreak more havoc.
This is a time to be “extremely careful,” Icahn said in an interview Friday on Bloomberg Television.
From his home on Miami’s Biscayne Bay, the billionaire investor has surveyed the damage to stock prices -- and to his portfolio -- and reached out to medical experts for information and opinions on the Covid-19 pandemic. To Icahn, who at 84 has traded through all the stock-market crashes since the Great Depression, the future is just too unpredictable for the S&P 500 to be trading at 17 times 2021 earnings estimates.
“You cannot really justify that multiple,” Icahn said. “Short-term, you may have some big downdrafts.”
The market disagrees. Since the Federal Reserve on March 23 unveiled a series of unprecedented measures to support the U.S. economy, followed by even more in subsequent weeks, stocks have roared back 30% from their intraday low.
Keeping Cash
Icahn, meantime, hasn’t spent the cash he says he always keeps for “a stormy day.”
One of the dividing lines between bulls and bears is the expected speed of the economic recovery. Icahn, who gave $200 million to the medical school at Mount Sinai Hospital in New York, said he’s been talking to “some of the smartest guys in this area” and formed an opinion of the virus that doesn’t leave him optimistic. He’s concerned about recurrences of infection and believes the economy will reopen in “spurts.”
“It’s not like turning on a spigot,” he said.
Icahn rose to fame and notoriety in the 1980s as a corporate raider. He’s since restyled himself as a shareholder activist, a role in which he’s battled fellow billionaires such as Michael Dell and Bill Ackman. Icahn also supported Donald Trump and in 2017 served as a special adviser to the president.
Many of Icahn’s larger stock holdings are in industrials such as oil refiner CVR Energy Inc. and Tenneco Inc., the auto-parts maker. They’ve been battered by the pandemic.
“We keep it pretty well hedged, but even the hedges couldn’t stop us from losing some money,” he said.
A wily trader, Icahn spotted a once-in-a-lifetime opportunity amid the market gyrations. On April 20, when it seemed the whole world was selling oil and crude futures fell to an unheard-of minus $40 a barrel, he was buying.
Icahn Bought Cheap Oil in Monday’s Plummet to Historic Lows
Because CVR constantly needs oil to supply its two refineries, Icahn realized he could use it to profit from the frenzy. He said he instructed the Sugar Land, Texas-based company to make space in its storage tanks and put in orders for 1 million to 2 million barrels at negative prices he doesn’t expect ever to see again.
Icahn’s biggest position is a multibillion bet he initiated in mid-2019 against the CMBX 6, an index of commercial real estate mortgage-backed securities.
It’s frequently called the “mall short” because many of the underlying loans are to retail centers. The more the pandemic slows economic activity and drives consumers to shop online, the greater the chances that some of those loans will default.
Since early March, one tranche, or slice, of the CMBX 6 is down almost 30%. Another riskier tranche has fallen more than 40%.
“It’s ‘08 all over again,” Icahn said, likening the trade to wagers that paid off massively when subprime mortgage debt collapsed more than a decade ago.
