By Mark DeCambre
“A lot of people in our economy are obviously not doing well,” Icahn says
It was Wall Street billionaire investor Carl Icahn who spoke to CNBC’s Closing Bell on Tuesday, in the wake of emergency measures taken by the government to cushion the impact of one of the biggest bank failures in US history.
The Icahn Enterprises co-founder says his investment portfolio is set up for more pain in the U.S. economy, which he notes is being hit by rapidly rising interest rates and escalating concerns about its overall health as the Federal Reserve tries to stave off inflation. the pressure from being anchored.
The Fed’s rate hikes are meant to cool economic growth by raising borrowing costs and dampening demand, but the ill effects of these rate hikes seem to be showing up in pockets of the economy.
Banks have been on a wild ride since late last week.
Blame the failure on a number of banks, most notably Silicon Valley Bank ( SIVB ) and Signature Bank ( SBNY ). These institutions have raised concerns about the ability of companies, and especially money center financial institutions, to operate effectively in this suddenly higher interest rate regime.
Banks should take advantage of a climate of rising interest rates because they borrow on a short-term basis and give long-term loans at higher interest rates, which causes the interest rate differential to be evened out.
Apparently, not all banks have managed risk well, and the rapid rise in interest rates, along with likely tactical missteps, may be part of the problem.
Shares in the SPDR S&P Regional Banking ETF (KRE), which covers the regional banking segment of the broader S&P 500, fell 10% on Monday, after falling 4.4% on Friday following the seizure by California regulators and the Federal Deposit Insurance Corp . SVB Financial Group, which operated Silicon Valley Bank.
At the weekend, the Fed announced a new emergency loan program to strengthen the capacity of the banking system and the government announced that all SVB depositors would get their money back.
Equity investors in the Dow Jones Industrial Average and S&P 500 have been on a tear since the events took shape late last week, with industry participants still on the lookout for possible spillover to other areas of the market.
Icahn, for his part, has been concerned about the economy after a historic stretch of easy money helped underpin asset bubbles in everything from crypto to tech and meme stocks.
Based on his interview with CNBC, the legendary Icahn sees the business climate on less than solid footing.
He said the average household net worth is “practically nothing.”
However, it’s not clear exactly how accurate his numbers are — though Americans have struggled with the challenges of rising prices and continue to do so for services as the impact of the COVID pandemic subsides.
The median net worth of American families, for example, is about $121,760, according to data from a survey conducted by the Federal Reserve’s 2019 Survey of Consumer Finances, the most recent data available. It was up almost 18% from the previous survey in 2016.
That said, according to a Bankrate report conducted last year, 56% of Americans wouldn’t be able to cover an unexpected $1,000 bill with savings.
These are just some measures of America’s fiscal health, but the overall picture has darkened for many as prices remain high and companies announce layoffs.
Meta Platforms Inc. ( META ) said it plans to lay off 10,000 more employees as it focuses on a “year of efficiencies.” The Facebook parent had already announced plans to cut more than 11,000 jobs in an initial round of cuts back in November.
Icahn sees conditions getting worse before they get better, and it may pay for investors to pay attention.
-Mark DeCambre
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03-14-23 2037ET
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