Carl Icahn: ignore the Fed

Activist investor Carl Icahn reckons that whatever the US Federal Reserve decides to do, it doesn't matter, says Matthew Partridge.

This year, markets have been paying even more attention than usual to the Federal Reserve's every word, looking for hints as to the direction of monetary policy. Yet billionaire activist investor Carl Icahn reckons that, whatever the US central bank does, it "doesn't matter".

Yes, a rate rise might hurt. But doing nothing could be even worse, "because the markets are in the middle of a huge bubble". It's impossible to know when it might burst because "it's sort of a guessing game" but the situation is "very dangerous". Right now, investors are walking along a narrow ledge if "you fall off that ledge you're really going to see trouble".

Icahn is concerned the underlying US economy "is not doing well", despite current near-zero interest rates. He blames the "amazingly arrogant" regulatory agencies for discouraging firms from investing in capital goods and machinery, which means that the US "cannot produce, we cannot compete". This industrial stagnation will eventually hit the dollar, he says, because "we're not going to be the reserve currency of the world" for ever. He also predicts that "terrible inflation" could "happen very quickly".

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This is one reason why unlike many of his peers on Wall Street he favours Donald Trump over Hillary Clinton for US president. Clinton "wants to bring in more government and bigger government", whereas Trump is "going to change the regulatory agencies". In short, "if Trump gets elected, this economy will be a lot better than if Hillary Clinton gets elected". However, even Icahn accepts that if Trump does win come the November election, "there's going to be a lot of near-term questions" and uncertainty over issues such as trade.

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri