Activist investor Carl Icahn has urged the Federal Reserve to stay the course in its fight against the “disease of inflation” despite the failure of Silicon Valley Bank and two other banks last week.
“I think you have to overcome the disease of inflation,” Icahn told the Financial Times.
“[Jay] Powell is absolutely right,” he added, referring to the Fed chair. “And I hope he doesn’t decide that they need to change course because of what’s happening.”
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 pause following the SVB implosion. According to futures markets, traders favor a slight rate hike.
The activist investor warned of tensions outside the financial sector, saying many companies have wasted billions of dollars on flawed acquisitions and become heavily indebted in the process. That would result in “major problems” for the broader economy, he predicted.
“I think GDP will be all right in the first quarter but after that, even on a nominal basis, I think you will see a slight decline in GDP for at least the next year and a half. I see what is going on in these companies. It’s very frightening,” he said.
“A lot of companies have wasted money because of low interest rates — they had the ability to make acquisitions and do things,” Icahn added.
Icahn is in the middle of a proxy fight with Illumina over what he describes as the gene sequencing company’s “reckless” $8bn acquisition of cancer-screening company Grail, which it went ahead with despite opposition from EU regulators. He said the deal was typical of companies run by “a bunch of overpaid guys.”
“It is a fiasco of the worst kind and shows the arrogance of some of these boards. They spent $8bn on a company that wasn’t making any revenue,” he said.
“I have seen too many boards in my time doing rotten deals and overpaying. But how do you go in and do a deal when the EU is telling them not to and there’s going to be great blame?”
Icahn said the fight with the EU could take several years and the only way forward for Illumina is to sell the assets. “Illumina is stuck in quicksand – the EU has it,” he added.
Icahn, who owns 1.4 per cent of Illumina, nominated three directors for election to the company’s board, arguing that the “inappropriate” 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 the relevant skills and experience to sit as directors on its board. It said it would sell Grail but only if it loses a legal appeal against a divestment order by European regulators.
