December 22, 2015

Doug Kass vs Carl Icahn on High Yield bond ETFs

I have nothing but the utmost respect for Carl Icahn. In fact, I believe he and Warren Buffett might be the modern era’s two greatest investors. But that doesn’t prevent me from criticizing the things that either say or the investments that they make when I disagree with them. (I’ve been openly critical of some of Buffett’s moves since 2010).

I believe Icahn is wrong and hyperbolic as a leading voice in warning that high-yield-bond exchange-traded funds represent a systemic risk to our financial system.

Icahn appears wrong regarding the systemic risk associated with high yield ETFs, partly because the ETF universe simply doesn’t represent much in the way of total assets. Still, he’s probably is right about the “knock-on” impact that widening junk-bond spreads might have on the U.S. stock market.

As for Icahn, some of his largest investments say to me that he doesn’t practice what he preaches, or else he never would have made them. He’s also gotten the equity class of some of his targets wrong. For instance, Icahn would have ironically been better off buying debt instead of equity with energy/resource companies.