November 17, 2014 / 8:47 PM / 3 years ago

Icahn expects major stocks correction in 3 to 5 years

Billionaire activist-investor Carl Icahn gives an interview on FOX Business Network's Neil Cavuto show in New York February 11, 2014.Brendan McDermid

(Reuters) - Carl Icahn isn't forecasting a dramatic stock market drop quite yet but the billionaire investor is still bracing for a market sell-off in the next three to five years, he told Reuters on Monday.

"I am still concerned that one day you'll see a break like you had a few weeks ago," Icahn said at the Reuters Global Investment Outlook Summit in New York, "but it won't come back."

With the Standard & Poor's 500 index now up more than 10 percent for the year and trading at 2,041, many investors have put October's short-lived slide behind them, saying low interest rates and a growing mergers and acquisitions boom will continue to fuel the bull market.

But Icahn is more concerned and is predicting a downturn. "It's really a question of when that is going to happen, in my opinion. It could be three years, it could be three months, it could be three days. But I really do believe there will be a major correction in the next three to five years, at least."

Even as many investors see blue skies ahead, Icahn is taking precautions. "We short S&Ps against a very large portfolio. We have the benefit of not having to worry that much about hedge fund partners," he said. Icahn added he still owns the stocks he loves including Apple Inc but there are some companies trading at multiples around 18 to 19 times earnings and "are mediocre companies." [ID: nL2N0T71YY]

A year ago in an interview with Reuters, Icahn helped push the market lower with his comments and he took pains this year to be careful on adding a vague timeline, noting that there are many variables he can't handicap.

He acknowledged he could be completely incorrect and the market could climb another 1,000 points. But he also pointed to his decades-long history of reading markets and making investments and said he's been right more often than he's been wrong.

Icahn, who at age 78 has lived through his fair share of ups and downs, is cautious, however, saying that oil companies, which have benefited from easy money but are suffering now amid a supply glut, could be experiencing a real bubble.

Acknowledging that his more worried view is not the norm on Wall Street these days, Icahn said "I like being a minority. I am not saying go short the market, I'm talking in general terms."

With U.S. oil now trading at roughly $75 a barrel, consumers have felt the impact of lower prices not only at the gas pump but more generally, Icahn said, calling the drop a plus for the economy in the short term.

While the drop has pushed down energy companies' share prices which caught many hedge funds off guard and hurt October returns, Icahn said there is a silver lining in that these companies may be on sale at some point, making for "great opportunities."

Icahn and his designates sit on 10 corporate boards and get a first-hand look at what corporate America is doing.

"I look at these earnings and I find them to be somewhat suspect," he said. The earnings that are being reported are based on the ability of companies to borrow at very low interest rates, he said, and everybody is saying "'Everything is great'."

However, he said many company executives he speaks to look at the economy and think, "it ain't what it's cracked up to be."

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Reporting by Svea Herbst-Bayliss and Jennifer Ablan; Editing by David Gaffen and James Dalgleish

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