Carl Icahn wants to be clear about his seemingly bearish stock market comments yesterday.
The famed activist investor was speaking at the Reuters Global Investment Outlook Summit Monday when he made remarks that halted markets' gains.
"I am very cautious on equities today," Icahn said. "This market could easily have a big drop." His reasoning is that earnings at many companies have been juiced more by low borrowing costs than by strong management.
The billionaire investor's comments spurred Monday's abrupt equities reversal. Having spent the bulk of the trading session in positive territory, with the Dow briefly breaching the 16,000 mark, major indexes shed most of their gains after Icahn's remarks were made public.
With the day's economic calendar all but empty, volume light, and little headline-making news, Icahn's statements were enough to rattle investor sentiment.
Turns out, though, Icahn was surprised he moved markets with those words. To clarify his comments, Icahn posted the following on his website Shareholders' Square Table:
"Reuters was completely accurate that I am concerned about the level of the market. But I also made it clear on the conference call (and I believe as Reuters reported it), that it is almost impossible to predict what a market will do in the short term. There are too many variables."
Often when investors are worried about the markets, Icahn continued, "we hedge to some extent and this is one of those times."
Since Jan. 1, 2009, his firm's investment funds returned roughly 27% annually, he said. If they had not hedged, he added, returns would have been greater.
"As I have often said, picking short-term moves in the market is like predicting how many sevens the 'hot' dice player will continue to roll," Icahn wrote.
Stocks Still Attractive
While investors should be cautious, as Icahn explained, leaving the markets altogether is a sure way not to make money…
Markets have been on a roll this year and it looks like there's more to come. The Dow is up 21.81% year to date, the S&P 500 is higher by 26.08%, the Nasdaq is ahead by 32%, and the IPO market is the strongest in five years.
However, the far-reaching gains have stoked talks of a bubble similar to the dot-com bubble in 2000 and the financial asset bubble in 2007.
To be sure, this bull market is "the most unloved bull market in history," says Money Morning Chief Investment Strategist Keith Fitz-Gerald. The present bull run has continued for 57 months, 14 months longer than the average bull market rally since 1953.
On Monday, Fitz-Gerald told FOX Business News you have to be a "reluctant bull." Noting the recent frenzy behind social media stocks, Fitz-Gerald says we are indeed looking at a tech bubble.
But he added, "you can't be out of this market or you'll be left far behind."
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