REUTERS/Chip East
- Carl Icahn sounded the inflation alarm and urged the Fed to keep hiking interest rates.
- The investor framed SVB's failure as a symptom of poor management and reckless spending in the US.
- Icahn predicted more bad companies would be exposed, and warned stocks are likely to tumble.
Carl Icahn has called on the Federal Reserve to keep hiking interest rates until it crushes inflation, and framed Silicon Valley Bank's failure as part of a wider problem of reckless spending and mediocre management.
The billionaire investor and Icahn Enterprises chairman has also predicted poorly run companies will be exposed as the economy weakens, and warned stocks are poised to tumble.
Soaring prices and bad incentives
"Inflation is the worst thing an economy can have, and I think people underrate that," Icahn told CNBC on Tuesday. "Powell really has to raise interest rates sooner or later."
"You've gone out on a binge, you've spent the family wealth, and you just keep spending," he continued. "At the end, you pay the price for it, and that's what this country has done."
Historic amounts of fiscal and monetary stimulus helped drive inflation to a 40-year high of 9.1% last June. The pace of price increases was 6% in February — still well above the Federal Reserve's 2% target.
Fed Chair Jerome Powell has tried to curb inflation by hiking interest rates from nearly zero to upwards of 4.5% in the past 12 months. Higher rates make borrowing more costly and encourage saving over spending, which can relieve upward pressure on prices. Yet they typically pull down asset prices and temper demand, increasing the risk of a recession.
Along with inflation, Icahn bemoaned the number of bad bosses in the US, and suggested the SVB fiasco was a product of that problem.
"Bank failure is a manifestation of the leadership in our companies and the way they spend money," he said.
Icahn also predicted economic pressures would reveal more mismanaged companies in the weeks ahead.
"When things are good, the rising tide lift all boats. But when things start going down, then you see who's naked," he said during "Your World with Neil Cavuto" on Fox News on Monday. "You're going to see a lot of nakedness."
Moreover, Icahn pointed to SVB's collapse and the federal government's decision to guarantee its deposits last week as a case where poor financial decisions weren't punished, which can encourage mindless spending and risk taking.
"You can't let companies think that when they screw up it doesn't matter because the government is going to save you," he said. "You're going to get rampant inflation, and your currency's going to go to hell."
Finally, the activist investor predicted the S&P 500 would tumble from its current level of around 3,900 points, or about 20 times its constituents' forecasted earnings for this year.
"No bear market ever bottomed out until future earnings on the S&P were going at 15 times," he said. "We still have a hell of a way to go to get to that 15 multiple, which I think you're going to get eventually when people lose confidence."