Friday, October 9, 2009

Carl Ichan: It Could Be a Bloodbath

Billionaire investor Carl Ichan gets it. He sees the volatile nature of the current markets, and the potential for a double-dip recession.

There is no indication that Ichan watches the money supply or understands business cycle theory, so his views, in the way they dovetail with mine, are very instructive.

How could he possibly come up with similar views? Because he really watches the markets in detail and knows what is moving in what direction relative to other situations.

As I outlined in my post, How To Monitor the Economy, the way to follow an economy is not by watching a bunch of over-aggregated pieces of data, but to really look at the numbers in as much detail as possible. Alan Greenspan, although not having a correct business cycle theory, is one of the best data hounds around, and could really tell you a lot more about the economy than aggregators. In the same way, Ichan watches the details of stock movements, he sees what is really going on in the minutiae of stock trades.

That's why he could say this morning on CNBC that there is a real risk of a double-dip recession and the market is acting in a "schizophrenic" way, which could cause a "bloodbath" for investors. How much more schizophrenic can you get than my forecast that depending on how things break, you could see gold at $500 per ounce or, on the other hand, $3,000 if they break the other way.

He sees how stocks are trading higher, but the volume isn't there to support the move and some pretty funny stocks are going up. He is seeing sector movements and individual stock movements, and is mentally comparing these against decades worth of stock activity he has observed. Thus, his comments:

If you get a double-dip recession and they start coming down, it's going to be a bit of a bloodbath.

The amateur investor is going to get hit badly again because they're pouring money into these funds. Some of these funds managers I do not think are experienced enough to handle some of the distressed stuff they're buying and they're going to get burned...
Icahn said he questions why "any individual in their right mind" would buy into Real Estate Investment Trusts (REIT). Investors could never liquidate the underlying value of the buildings on their portfolios, he said.

"I think there's overcapacity in the office market and in shopping centers because you have a secular change in the way retailers are behaving and the way consumers are behaving," he added.

This is trader talk. He knows what is going on in, say, the REIT industry and he has seen it before when investors rush into such an unsound sector. He can't give you the business cycle theory to explain it, but he can see how stocks are reacting now versus reality, and he knows from past observations what this generally means.


  1. Listening to Carl all these years has led me to believe he knows what he's talking about. Especially concerning human behavior

  2. the "schizophrenic" condition just up the road arises due to the lag between event (Fed raises overnight rate,pays higher reserve rate, etc)and the impact. In other words, cash could be sucked out of gold (and hence a decline of significant proportions), but the inflationary impact and associated resumption of dollar printing leads rather directly to nose bleed levels for gold. This might be the one time we will see a V shaped recovery. But just for gold.