Activist investor Carl Icahn has urged the Federal Reserve to stay the course in battling “inflation disease” despite the collapse of Silicon Valley Bank and two other banks last week.
“I think you have to eradicate the disease of inflation,” Icahn told the Financial Times.
“[Jay] Powell is absolutely right,” he added, referring to the Fed chairman. “And hopefully he doesn’t decide they have to change course because of what’s 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 pause after the implosion of the SVB. According to the futures markets, traders are slightly in favor of a rate hike.
The activist investor warned of stress beyond the financial sector, saying many companies have wasted billions of dollars on flawed acquisitions and become overleveraged in the process. This would cause “major problems” for the wider economy, he predicted.
He said: ‘I think in the first quarter GDP might be okay, but after that even on a nominal basis I think you’ll see GDP come down a bit, at least for the year and a half to come. . I see what is happening in these companies. It’s so awful.
“A lot of companies wasted 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 battle with Illumina over what he describes as the “reckless” $8 billion acquisition by gene-sequencing firm of cancer screening company Grail, with which it proceeded despite opposition from EU regulators. He said the deal was emblematic of companies run by “a bunch of overpaid guys”.
“It’s a fiasco of the worst kind and typifies the arrogance of some of these councils. They’ve spent $8 billion on a business that doesn’t generate any revenue,” he said.
“I’ve seen a lot of boards doing lousy deals and overpaying for my time. But how do you go in and do the deal even when the EU tells them not to and there will be big recriminations? »
Icahn said the fight with the EU could take many years and the only way forward is for Illumina to divest the asset. “Illumina is stuck in quicksand – the EU has it,” he added.
Icahn, who owns a 1.4% stake in Illumina, nominates three directors for election to the company’s board, arguing that the ‘ill-advised’ decision to acquire Grail had already cost shareholders $50 billion .
Illumina opposes electing Icahn’s nominees, arguing in a statement that they lack the relevant skills and experience to serve as a director on its board of directors. He said he would sell Grail but only if he lost a legal challenge against a divestiture order by European regulators.