We haven't heard Carl Icahn this bearish in a long time

Carl Icahn gave a wide ranging interview on Sunday’s Wall Street Week, and he was more bearish than Business Insider’s heard him in some time.

He told hosts Anthony Scaramucci and Gary Kaminsky that his portfolio is hedged for a correction.

“I’m very concerned about the market, I think that you have a situation where this market keeps going up…. and yet a lot of the economic news isn’t all that good and also more importantly, earnings aren’t good.”

The bottom line, to Icahn, is that you’ve got stocks trading at 17 and 18 times multiple the S&P. Those same stocks are going to whiff earnings. What rational person would buy that?

But that form of desperate irrationality is not the worst thing to Icahn.

“What’s even more dangerous than the actual stock market is the high yield market. Junk bonds. “

Icahn is so worried he said he wants to start putting out information about how dangerous the hunt for yield is getting. Two weeks earlier on Wall Street Week, DoubleLine’s Jeff Gundlach expressed the same concern.

“I think default rates are going to go up in this market,” Icahn said. “You see all these high yield funds… money keeps going into them…. When they [the bonds] start coming down there’s going to be a rush for the exits. What is even worse is, even in ’08… you had a bit of a safety net because of the prop desks at banks, but today with the Volker Rule… there’s no catching it.”

It’s an important point. Without big banks trading their own money there’s less liquidity in the market. That means when big institutional investors — like pension funds that Icahn worries are “too invested” in these assets — start to sell, there won’t be as many buyers on the other side of the trade.

And that’s a scary prospect — that’s when things can go south, fast.

Watch the full episode here.

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