Carl Icahn bet on America failing. Instead he lost $9 billion

In 2021, Warren Buffett wrote in his closely watched annual letter to shareholders that “never bet against America,” and fellow billionaire investor Carl Icahn’s recent experience seems to support that sentiment. Icahn’s venture capital firm, Icahn Enterprises, had a market value of $18 billion just a month ago, but a damning report earlier this month by the notorious short-selling firm Hindenburg Research slashed nearly $7 billion in value. Now it appears that Icahn’s investments were going badly long before Hindenburg decided to target the activist financier, who was spending billions after making what he says was an unwise bet against the US economy.

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Hedging is always a risky investment strategy, and betting against the United States is even riskier, as Icahn has discovered over the past six years. An investor bets that the US stock market will crash, but not only does his bet fail to pay off, he loses nearly $9 billion, according to an analysis and interview with Icahn by financial times Posted Thursday.

Icahn told FT for his heavy losses. “I may have been wrong not to heed my advice in recent years.”

Icahn’s misfortune began in 2017, when failed hedge positions lost $1.7 billion. Another $7 billion was lost between 2018 and the first quarter of this year FT is found.

The newly disclosed losses are the latest of several missteps in Icahn’s long and mostly successful history in the market. Hindenburg Research, an activist short-selling firm with a penchant for shorting corporate stock shortly before revelations about its mismanagement issues, targeted Icahn Enterprises earlier this month, alleging that the company employs a “Ponzi-like” financial structure. It offers an unsustainable dividend yield that deceives investors and greatly inflates the value of the company’s assets.

Icahn refuted Heidenberg’s claims in a statement earlier this month that called the seller’s short report “self-serving” and “aphrodisiac.” But his personal fortune and his company’s reputation suffered. Shares of Icahn Enterprises are down 37% this month due to the Hindenburg case, while Icahn’s personal net worth fell 41%, or $10 billion, in a single day after the report was released. Icahn’s personal wealth has shrunk from $24.8 billion on May 1 to $7.8 billion now, according to bloomberg.

Now, new revelations about a years-long failed position that the US economy will collapse will likely help him a bit to shore up his position, though he says he’s learning from his mistakes.

Icahn told FT. “But I didn’t.”

A crash never happened

Icahn began betting on a market crash in the aftermath of the 2008 financial crisis, and has become more aggressive in subsequent years. According to FTlargely due to his increasingly bearish attitudes.

The paper found that the value of the securities Icahn bet on through Icahn Enterprises at one point added more than $15 billion, and Icahn even committed nearly $4 billion of his personal fortune to his company because it lost money on short-selling plays.

Icahn’s bet may have looked justified in 2020, when the COVID-19 pandemic threw markets into disarray and plunged the US economy into a severe recession. But the downturn turned out to be the shortest of all, lasting just two months, after heavy government spending on stimulus quickly revitalized economic activity.

Icahn told The FT. “[But] The Fed has pumped trillions of dollars into the market to fight COVID and the old adage is true: “Don’t fight the Fed”.

While markets suffered last year due to higher interest rates, the economy itself has rebounded nicely from the coronavirus-induced recession. The American labor market remains tight, and the share of working adults — ages 25 to 54 — participating in the workforce has taken just three years to return to pre-pandemic levels. After the 2008 crisis, the same demographics took 12 years to normalize. The stock market has also been steadily rising in value this year as the Federal Reserve has signaled it may hold off on further rate hikes, with the S&P 500 up nearly 10% since January.

Many economists, including former Treasury Secretary Larry Summers, still warn of a looming recession, though its start date continues to be pushed back. And even if the economy generally escapes Fed interest rates, the stock market, which in many ways is an indicator of where investors feel the economy is headed, could go a different route.

Icahn said he remains bearish about the economy’s chances in the short to medium term, but also noted that he had learned a lesson not to bet too much on the US.

“I still to some extent think that this economy is not good and there will be problems in the future,” he said. “We are still surrounded, but not as much as we were.”

But Icahn is likely still in trouble even if his bet on the US economy pays off. Icahn Enterprises is also dealing with a government investigation this month investigating the company’s governance practices, earnings, and due diligence process. It is unclear if this investigation was related to the Hindenburg Report. Meanwhile, activist investors like Icahn, financiers who buy a large enough stake in troubled companies with the intent of influencing management decisions, have faced an increasing number of challenges in today’s high-price environment.

This story originally appeared on

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