Throughout 2022, Wall Street has repeatedly warned buyers {that a} recession might be on its approach.

From JPMorgan Chase CEO Jamie Dimon to former Federal Reserve officers, the world’s high financial minds have pointed, virtually in unison, to the storm of headwinds going through the worldwide financial system and expressed fears in regards to the potential for a critical downturn.

In the U.S., shoppers are grappling with close to 40-year high inflation and rising rates of interest, all whereas the world struggles to deal with the battle in Ukraine, the European power disaster, China’s COVID-zero insurance policies, and extra.

And even after a greater than 21% drop within the S&P 500 this 12 months, Wall Street’s finest minds nonetheless suppose shares have additional to fall.

“The worst is yet to come,” Carl Icahn, who serves because the chairman of Icahn Enterprises and boasts a web value of $23 billion, told MarketWatch on the Best New Ideas in Money Festival on Wednesday.

Icahn made his title as a corporate raider on Wall Street within the Eighties, shopping for up unloved corporations and aggressively advocating for change to enhance shareholder worth by appointing board members, promoting property, or firing staff.

Even at 86, Icahn stays one among Wall Street’s most revered minds, and this 12 months he has repeatedly warned the U.S. financial system and inventory market are in hassle.

The investor argues the Federal Reserve boosted asset costs to unsustainable ranges amid the pandemic utilizing near-zero rates of interest and quantitative easing—a coverage the place central banks purchase mortgage backed securities and authorities bonds in hopes of spurring lending and funding. 

“We printed up too much money, and just thought the party would never end,” he stated, including that with the Fed switching stances and elevating charges to struggle inflation, he now believes “the party’s over.”

The hangover from the Fed’s free financial insurance policies, in keeping with Icahn, is sky-high inflation, which rose 8.3% from a 12 months in the past in August.

“Inflation is a terrible thing. You can’t cure it,” Icahn stated, noting that rising inflation was one of many key components that introduced down the Roman Empire.

Rome famously experienced hyperinflation after a sequence of Emperors lowered the silver content material of their foreign money, the denarius. The state of affairs then dramatically deteriorated after Emperor Diocletian instituted value controls and a brand new coin referred to as the Argenteus, which was equal in worth to 50 denarii. 

The results of Roman emperors’ unsustainable insurance policies was an inflation charge of 15,000% between AD 200 and 300, in keeping with estimates by some historians

Icahn stated that inflation like this worries him a lot that he would have appreciated to see the Federal Reserve elevate rates of interest by a full 1% on Wednesday, as an alternative of the 75 foundation level hike that Chair Powell introduced, to make sure value will increase gained’t stick round.

But regardless of Icahn’s inflation fears, the billionaire investor stated he has managed to outperform his friends by hedging his portfolio—a technique that makes use of derivatives to restrict market danger and improve earnings—through the market downturn. 

Icahn Enterprises web asset worth jumped 30% or $1.5 billion within the first six months of 2022.

On Wednesday, Icahn argued that there are nonetheless shares that look interesting available on the market right now, however he cautioned buyers to not get grasping too quickly.

“I think a lot of things are cheap, and they’re going to get cheaper,” Icahn stated, arguing corporations within the oil-refining and fertilizer companies ought to outperform the general market shifting ahead.

Wednesday’s warning for buyers wasn’t the primary from Ichan this 12 months, both.

The billionaire warned again in September {that a} recession or “even worse” was doubtless on the way in which for the U.S. financial system and in contrast right now’s excessive inflation with that of the Nineteen Seventies, arguing the Fed will battle to regulate rising shopper costs.

“You can’t get that genie back in the bottle too easily,” he stated.

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