September 29, 2015

Every morning our firm sits together and has “coffee talk”, where we basically sip strong Louisiana coffee and go over topics of interest. Occasionally we talk about what dinner we plan on cooking that night, it’s a nice distraction from the recent gloom and doom of our industry. This morning we discussed the weaknesses we have been seeing in the major markets and went over our weekly and monthly charts and we keep seeing the same thing: a strong warning to be careful.

Billionaire and outspoken corporate business investor, Carl Icahn, has been warning investors for almost a year now. What is it that Carl and our firm believe to be so dangerous? Low interest rates hovering near zero which are creating investment bubbles in real estate, art, corporate earnings and high yield bonds. We have turned into a society who wants low risk and high return, and this way of thinking has gotten us into trouble most recently in 2008. If you do not learn from history, you are bound to make the same mistakes. Do we think the end is near and that we should all panic? No. However, we don’t believe you shouldn’t just depend on the old truism “It always comes back” and sit on your hands while your portfolio bleeds out. Money market funds do not earn much yield, but they certainly earn peace of mind during stormy periods of market unrest.

See below for more on Icahn.

The list of Icahn’s top economic concerns:

*Hedge fund managers don’t pay enough in taxes: Icahn said he agrees with Trump that Congress should close a tax loophole that allows hedge fund managers and other professional investors to benefit from lower tax rates on earnings. Under the current system, hedge fund managers get paid a portion of profits they earn for clients, which are taxed as capital gains, or around 23.8%. If they were taxed at ordinary income, they would have to pay up to 39.6%.

*Interest rates are too low: Icahn said he agrees with critics who have tied the mortgage meltdown of 2008 to the low interest rates that proceeded it. Lending standards have since been tightened, but Icahn said he still fears that historically low interest rates, which now hover close to zero, are creating asset bubbles in other areas, including high-yield bonds.

*M&A bubble: Icahn said the rise of junk bonds is contributing to an artificial merger boom. Companies are using the cash they have raised from junk bonds to buy companies they could not otherwise afford, he said. He said the merger boom is contributing to false growth by companies. “It’s like steroids,” he said of the rise in acquisitions.

*Corporate taxes are too high: Icahn says he wants Congress figure out a way to incentive companies to bring back the $2.2 trillion in cash they have overseas. It’s an issue some policymakers have argued could be dealt with through a tax holiday. Such a holiday would forgive either all or a portion of $770 billion in taxes that would otherwise be owed and benefit a slew of tech companies, including Apple — one of Icahn’s largest investments. Other economists have called for corporate taxes to be lowered more permanently.

http://www.usatoday.com/story/money/2015/09/29/billionaire-carl-icahn-warns-danger-ahead-us-economy/72743446/