Carl Icahn and Warren Buffett Battle Over the Market’s ‘Day of Reckoning’ by Stephen Gandel @FortuneMagazine April 29, 2016, 1:27 PM EDT E-mail Tweet Facebook Linkedin Share icons Can Carl call it right twice? Back in September, Icahn released a video saying that there was “danger ahead” in the financial markets. His timing was perfect. Over the next few months, the market nearly suffered a correction, as fears about China, junk bonds, and oil bubbled over. In 2016, the market had one of its worst starts ever. Since then, though, Icahn’s view on the market hasn’t seemed as prescient. Stocks have rebounded and are nearly even for the year. Oil prices are rising. And the junk bond market, while painful for anyone who bet on the bonds of frackers, has not caused another financial crisis, as Icahn predicted. Now Icahn is back again. This time it’s not danger ahead he is predicting, but a more ominous “Day of Reckoning,” which is the phrase he used on CNBC Thursday evening. Icahn is saying that the Fed has juiced the markets with low interest rates. But the recent rise in the Dow is not actually based on anything. So Icahn says we need fiscal stimulus and fast from Washington for the economy to live up to the promise the market is betting on. That’s not likely to happen. So the market may tumble. Icahn said he had a large short position, meaning he was betting stocks would fall. Icahn is right that GDP growth, which was just 0.5% in the first quarter, was pretty lackluster. And corporate profits in the first quarter look weak, but not quite as bad as people expected. What’s more, the stock market is back to its relatively high price-to-earnings ratio of 18 times next year’s earnings. That’s not a recipe for great stock market returns. But none of that means the market is going to crash, and Icahn has none other than Warren Buffett, the Oracle of Omaha, taking issue with his predictions. In an interview on CNBC Friday morning, Buffett said that the Fed’s low interest rates were not merely in place to pump up a stock market bubble and that, based on where interest rates are today, stocks should actually be higher than where they are now. “Interest rates act on asset values like gravity works on physical matter,” Buffett said. “If you had zero interest rates and you knew you were going to have them forever, stocks should sell at, you know, 100 times earnings or 200 times earnings.” Buffett said Icahn was one of tens of thousands of people who bought or sold stocks on Friday, and he wouldn’t put any more credence on what Icahn had to say than any of those other people. Buffett said he feels like a “10 on the long-term optimism” scale. Icahn also told CNBC that, “A country is not a company.” But he is supporting Donald Trump for president. And Trump’s campaign argues that The Donald will be a wonderful president because he has been a brilliant businessman. We have our doubts about the latter claim. But if Icahn doesn’t think running a company is like running a country, why is he supporting Trump? Last fall, Icahn’s correctly read that there were a bunch of risks out there that the market and investors hadn’t fully factored in. But investors tend to panic and then move on. So it’s unlikely that the things Icahn has been worried about recently, i.e. low interest rates or junk bonds, would roil the market again. The market may be overvalued. But, in general, recessions and interest rates tend to take down the stock market, not high share prices.