Salient to Investors:

Carl Icahn said:

  • BlackRock have fueled a bubble in the high-yield debt market through the sale of ETFs filled with risky bonds, akin to the banks selling billions of dollars of faulty subprime mortgage bonds in 2007. The ETFs offer the appearance of liquidity and make the high-yield bond market seem safer than it is.
  • Credit default swaps in high-yield bond funds make the liquidity problem even worse.
  • The high-yield debt market is overvalued – expect losses in oil and gas high-yield bonds.

Larry Fink at BlackRock said:

  • There could be some losses in high-yield debt but there won’t be a crash. There are no similarities with the market in 2007, not nearly as much leverage in the system as then, particularly at the banks.
  • Icahn’s criticism of Blackrock is baseless. Studies show that ETFs increased liquidity in the markets, not the opposite.

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