Market Overview

Carl Icahn's Dire Warning About Bubbles In The Economy

Carl Icahn's Dire Warning About Bubbles In The Economy
  • Carl Icahn believes that bubbles in art, real estate and high-yield bonds could burst when the Fed raises interest rates.
  • He believes that the Fed should have begun raising rates six months ago.
  • Icahn is currently more hedged than he’s been in years.

Legendary investor Carl Icahn has certainly never been one to mince words. In a phone interview with CNBC this weekend, Icahn explains why he believes that the art, real estate and high-yield bond markets may soon be facing a catastrophe similar to the one that the U.S. housing market faced back in 2007.

The Cause Of The Crisis

Icahn believes that the prolonged environment of historically-low interest rates has created bubbles in several markets, including real estate, and that it is hard to predict what will happen when rates start heading back up.

“We do know when we did it a few years ago it caused a catastrophe, it caused ’08,” Icahn explained.

Backed Into A Corner

Icahn believes that the Federal Reserve missed its window of opportunity for raising interest rates and minimizing negative market impact. Icahn feels that the Fed should have begun raising interest rates six months ago when global markets seemed to be firing on all cylinders.

At this point, Icahn explains, the Fed “may have backed itself into a corner.”

Trading Ideas

Icahn says that he is “more hedged now than [he's] been in years.”

Investors looking to hedge the three at-risk markets that Icahn specifically mentioned could look at selling fine art auctioneer stock Sotheby’s (NYSE: BID), REITs and REIT ETFs such as the iShares U.S. Real Estate ETF (NYSE: IYR) and/or high-yield bond ETFs such as the SPDR Barclays Capital High Yield Bond ETF (NYSE: JNK).

Disclosure: the author holds no position in the stocks mentioned.

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