Legendary activist Carl Icahn (Trades, Portfolio) went on CNBC for an interview on March 13, 2020.
Icahn has run a very well-hedged book over the past few years. Now he believes the market has reached a point where some companies are being given away. He does think the market probably still has a way to go down. However, he’s not hedging as much anymore.
He is buying Hertz (HRTZ), Hewlett Packard (HPQ, Financial) and Occidental Petroleum (OXY, Financial). Icahn believes there is too much money floating around, and as a result there have been a lot of companies overborrowing. With that money, they did a lot of buybacks. Now they can’t make earnings to pay back the debt or cover the interest.
Icahn now owns over 10% of Occidental and has been highly critical of its CEO Vicki Hollub, especially the way she executed a takeover of Anadarko Petroleum by avoiding a shareholder vote. The activist investor calls it a very good company with an an awful board.
Hewlett Packard is another activist position where Icahn seems to be trying to engineer a merger between another one of his holdings; Xerox (XRX, Financial) and Hewlett Packard (HPQ, Financial).
He seems to blame part of the overborrowing on the index funds. People across the country bought the index funds/ETFs not really knowing what they own. This is one of the problems we have today. The machines are just selling stocks from the indexes regardless of business quality.
Icahn’s biggest position as of the writing of this article is a short on the commercial mortgage bond market. He is basically shorting mortgages of corporate offices and shopping malls. I think this is a product with a very low cost of carry, but that will pay out in spades if this market breaks in a serious fashion.
Disclosure: author owns bonds of OXY, HPQ, IEP
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