Activist investor Carl Icahn has urged the Federal Reserve to stay the course in the fight against the “disease of inflation” despite the failure of Silicon Valley Bank and two other banks last week.
“I think you have to stamp out the disease of inflation,” Icahn told the Financial Times.
“[Jay] Powell is completely right,” he added, referring to the Fed chair. “And I hope he doesn’t decide that they need to change course because of what is going on.”
Icahn’s comments come ahead of the Fed’s rate-setting meeting next week, with economists actively debating whether it will raise interest rates by 0.25 percentage points or take a pause following the SVB implosion. According to futures markets, traders slightly favour a rate rise.
The activist investor warned of stress beyond the financial sector, saying many companies had wasted billions of dollars on flawed acquisitions and become over-indebted in the process. That would result in “major problems” for the broader economy, he predicted.
“I think in the first quarter GDP might be all right but after that, even on a nominal basis, I think you will see GDP go down quite a bit, at least for the next year and a half. I see what is going on in these companies. It is so horrible,” he said.
“A lot of companies have squandered the money because of low interest rates — they had the ability to make acquisitions and do things,” Icahn added.
Icahn is in the midst of a proxy fight with Illumina over what he describes as the gene sequencing company’s “reckless” $8bn acquisition of cancer-screening company Grail, with which it pressed ahead despite opposition from EU regulators. He said the deal was emblematic of companies run by “a bunch of overpaid guys”.
“It is a fiasco of the worst kind and typifies the arrogance of some of these boards. They spent $8bn on a company that doesn’t make any revenue,” he said.
“I’ve seen a lot of boards do rotten deals and overpaying in my time. But how do you go in and complete the deal even when the EU is telling them not to do it and there will be great recriminations?”
Icahn said the fight with the EU could take many years and that the only path forward is for Illumina to divest the asset. “Illumina is stuck in quicksand — the EU has them,” he added.
Icahn, who owns a 1.4 per cent stake in Illumina, is nominating three directors for election to the company’s board, arguing the “ill-advised” decision to acquire Grail had already cost shareholders $50bn.
Illumina is opposing the election of the Icahn nominees, arguing in a statement that they lack relevant skills and experience to sit as director on its board. It said it would sell Grail but only if it loses a legal appeal against a divestment order by European regulators.