According to reporting by ZeroHedge, investment guru Carl Icahn's Carl Icahn Enterprises (IEP) is placing a large bearish bet on the market. The article points to its liquidation of its large position in Apple, Inc. (AAPL) as well as a now historic -150% short exposure to the stock market. Icahn has gone on the record that he believes asset markets are overvalued and poised for a precipitous drop. From the ZeroHedge article, "when asked about this unprecedented bearish position, Icahn Enterprises CEO Keith Cozza said during the May 5 earnings call that 'Carl has been very vocal in recent weeks in the media about his negative views.'" But, how do other investors feel about Icahn's big bet? (See also: Carl Icahn Biography.)
Shares of Carl Icahn Enterprises Have Slumped
With asset markets climbing over the past twelve months, it's no surprise that shareholders of Carl Icahn Enterprises have suffered as the investment fund takes increaslingly large contrarian short positions. To be sure, shares of Iep are down approximately 12.5% year to date and 40% over the past twelve months (it is worth noting that IEP shares do carry an 11% dividend yield so the total return is not as negative as the price return). Still, Icahn has underperformed the S&P 500 and his big negative bet can only continue to hurt share prices at an accelerating rate if market prices continue to extend their bull rally.
A Big Payoff If the Market Crashes
That said, Icahn's bearish bet will pay off nicely if markets do indeed crash and a bear market ensues. Similarly, shareholders of Carl Icahn Enterprises will stand to benefit; owning IEP may be a hedge against being long the broader equity market. Known for being one of the world's most intuitive and methodical investors, Carl Icahn must have something more to go on that a simple gut feeling regarding the near future of the markets. If Icahn is right, not only will he have re-affirmed his position as a true market guru, but also earn a large profit.
The Bottom Line
Carl Icahn has taken on a massive short market position by way of his publicly traded investment vehicle Carl Icahn Enterprises. This bearish bet has materialized progressively over the past few months, but with shares of IEP floundering as the broader market has risen modestly. If there is a market crash, however, Icahn and shareholders of IEP may see a great return as others long the market suffer.