David Einhorn interview on King World News

David Einhorn was interviewed on King World News yesterday. The 21-min interview is available as an MP3 file on the KWN page.

David Einhorn interview on CNBC

David Einhorn was on CNBC this week for an hour long interview, and I admit that it was quite an interesting one. The baby-faced manager of the GreenLight Capital hedge fund is very frank and honest — I don't understand how he can be such a great Poker player — and even though I'm not very interested in his single stock position, there was a lot of insights from this great mind of the HF industry.

1. Einhorn: Low Rates "Very Dangerous Long-Term Policy"
2. Einhorn on Lehman Bros.
3. Economic Drill Down
4. Einhorn's Long Positions

If you had to watch only of these 4 segments, I would highly recommend the 3rd one, where Laurence Meyer, a former Federal Reserve governor, debates with Einhorn.

I had never heard of Meyer, but it's amazing to see that even today, you can hear one of these blatant ignorants say things that go like "The Fed controls the inflation, it's economic 101, when you lower the rates, you get inflation". So not only didn't he understand the deflation that occurred in the 1930s, but he also fails to see that Japan has deflating for almost 20 years, even with rates at zero percent. Worse, he fails to draw the conclusion even after the obvious failure of Bernanke and Congress to raise inflation for the past 3 years, while trillions of dollars have been wasted in deficits spending, quantitative easing and the other alphabet soup lending facilities at the Fed.

Finally, the 4th segment is probably the one you can skip, as he explains why his fund has been investing in Apple, and a few telco carriers. He also discusses a bit about gold, which is his fund's biggest position.

Buffett says Ratings Companies Still Have 'Phenomenal' Business Model

A friend of mine sent me two interesting links from the WSJ. The first one was dealt with in my previous post: Government backed 96.5% of all home loans in Q1. The second one is about Buffett bragging about the phenomenal business of the rating agencies. I'm not a subscriber to the WSJ, but googling around lead me to this other link on Nasdaq, which seems to republish the same news article.

OMAHA, Neb. -(Dow Jones)- In the past year, Berkshire Hathaway has been rapidly selling shares of Moody's Corp., the ratings outfit.

But Bershire still has a large stake in Moody's, which many say played a key role in the financial crisis by handing out high ratings to mortgage bonds that later collapsed.

Berkshire CEO Warren Buffett mounted a defense of the firms. He said he believes the ratings outfits, including Standard & Poor's, have "incredibly wonderful businesses" and that their "pricing power is significant."

The rating agencies have proven that not only governments creating a monopoly cannot help in bringing in useful ratings but they keep their prices artificially high by preventing competition in the market place ("pricing power is significant" — why do you think so??) and fair ratings cannot happen when the company needing a rating on his own debt or products is paying to get them.

The subprime and CDO cataclysmic collapses just prove the previous points.

So, let's put the record straight, consequently, Buffett is not a free market advocate, he's driven by greed and profits, nothing else.

• Buffett has shown several times in the past that he doesn't care about integrity
• Buffett only talks his book, nothing else.

David Einhorn has been showing far more integrity and honesty and makes a clear case about why their business model is broken, and why he is shorting the shares as well. Here are some quotes from a MarketWatch report (see MarketWatch for full text):

Einhorn said that many institutions with AAA ratings, including the U.S. government, turned that supposed benefit into a disaster by borrowing recklessly, according to a hedge-fund investor.

Most of the companies that have run into trouble during the financial crisis were or still are AAA rated, including American International Group (AIG), Fannie Mae, Freddie Mac, MBIA, Ambac and General Electric, Einhorn noted.

The leading purveyor of AAA ratings is Moody's, so Greenlight Capital is short that company's shares, the investor quoted Einhorn as saying.

Einhorn argued that Moody's is part of a government-created oligopoly that should be abolished. The smartest investors, including Warren Buffett, ignore credit ratings when making investment decisions, he said.

Soros buys more gold and predicts bubble

I'm not a big fan of George Soros when it comes to his Keynesian and interventionist points of view, but one can only admire him when you look at his investment track record.

A couple of friends sent me a link to this Bloomberg report. Although I'm really not sure it will go up in a straight line from here and still expect a correction, it's worth knowing what investment gurus think.

March 1 (Bloomberg) -- George Soros is helping drive up gold prices by doubling his bet in a market even he considers a “bubble” as Goldman Sachs Group Inc., Barclays Capital and HSBC Holdings Plc predict more gains before it bursts.

Soros Fund Management LLC, which manages about $25 billion, increased its investment in SPDR Gold Trust, the world’s largest exchange-traded fund for the metal, by 152 percent in the fourth quarter, a Feb. 16 Securities and Exchange Commission filing shows. [...]

“When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment,” Soros said at the World Economic Forum’s annual meeting in Davos, Switzerland, in January. “The ultimate asset bubble is gold,” he said.

In a Jan. 28 Bloomberg Television interview, the 79-year- old billionaire recalled that former Federal Reserve Chairman Alan Greenspan warned of “irrational exuberance” in financial markets three years before the technology bubble burst in 2000. The Standard & Poor’s 500 Index rose 89 percent in the period. Buying at the start of a bubble is “rational,” Soros said.
[...]
Tudor Investment Corp., based in Greenwich, Connecticut, increased its stake in Newmont Mining Corp., the largest U.S. gold producer, almost fourfold in the final quarter of 2009. Gold is “just an asset that, like everything else in life, has its time and place. And now is that time,” Paul Tudor Jones said in an October letter to clients.
[...]
Soros’ New York-based firm became the fourth-biggest investor in the SPDR Gold Trust by the end of 2009, 17 years after he made $1 billion breaking the Bank of England’s defense of the pound. The SPDR fund holds 1,107 tons, more than either Switzerland or China.

Paulson &Co. is the ETF’s biggest investor, with 31.5 million shares, regulatory filings show. With each representing almost a 10th of an ounce of gold, the hedge fund firm’s stake is the equivalent of about 96 tons, exceeding the holdings of Australia and Kuwait.

New York-based Paulson is also the biggest investor in Johannesburg-based AngloGold Ashanti Ltd., Africa’s top producer. The Market Vectors Gold Miners ETF is Einhorn’s seventh-largest holding, according to a Feb. 16 filing.

David Einhorn on why to hold onto gold

As usual, David Einhorn public speeches are quite rare and quite worth listening to. The good news is that the transcript of the latest speech from David Einhorn at the Value Investing Conference has been published (read here in PDF format).

[...] Four years ago I spoke at this conference and said that I favored my Grandma Cookie’s investment style of investing in stocks like Nike, IBM, McDonalds and Walgreens over my Grandpa Ben’s style of buying gold bullion and gold stocks. He feared the economic ruin of our country through a paper money and deficit driven hyper inflation. I explained how Grandma Cookie had been right for the last thirty years and would probably be right for the next thirty as well. I subscribed to Warren Buffett’s old criticism that gold just sits there with no yield and viewed gold’s long-term value as difficult to assess.

However, the recent crisis has changed my view. The question can be flipped: how does one know what the dollar is worth given that dollars can be created out of thin air or dropped from helicopters? Just because something hasn’t happened, doesn’t mean it won’t. Yes, we should continue to buy stocks in great companies, but there is room for Grandpa Ben’s view as well.

I have seen many people debate whether gold is a bet on inflation or deflation. As I see it, it is neither. Gold does well when monetary and fiscal policies are poor and does poorly when they appear sensible. Gold did very well during the Great Depression when FDR debased the currency. It did well again in the money printing 1970s, but collapsed in response to Paul Volcker’s austerity. It ultimately made a bottom around 2001 when the excitement about our future budget surpluses peaked.

Prospectively, gold should do fine unless our leaders implement much greater fiscal and monetary restraint than appears likely. Of course, gold should do very well if there is a sovereign debt default or currency crisis.

When I watch Chairman Bernanke, Secretary Geithner and Mr. Summers on TV, read speeches written by the Fed Governors, observe the “stimulus” black hole, and think about our short-termism and lack of fiscal discipline and political will, my instinct is to want to short the dollar. But then I look at the other major currencies. The Euro, the Yen, and the British Pound might be worse. So, I conclude that picking one these currencies is like choosing my favorite dental procedure. And I decide holding gold is better than holding cash, especially now, where both earn no yield.
[...]
For years, the discussion has been that our deficit spending will pass the costs onto “our grandchildren.” I believe that this is no longer the case and that the consequences will be seen during the lifetime of the leaders who have pursued short-term popularity over our solvency. The recent economic crisis and our response has brought forward the eventual reconciliation into a window that is near enough that it makes sense for investors to buy some insurance to protect themselves from a possible systemic event. To slightly modify Alexis de Tocqueville: Events can move from the impossible to the inevitable without ever stopping at the probable.

David Einhorn's Greenlight Capital switched his holdings in GLD gold ETF into bullion

This is an interesting piece of news because it kind of means that Greenlight is committed to hold its gold position for a long time.

I don't know more than what the Bloomberg report says but it usually is more difficult to get rid of physical positions than exchange traded ETFs. But maybe he has an arrangement with the CME or LSE and can hence sell his stake in the futures market...

July 14 (Bloomberg) -- Greenlight Capital Inc., the $5 billion hedge-fund firm run by David Einhorn, told investors it switched all of its holdings in a gold exchange-traded fund into bullion during the second quarter.

“At a minimum this will provide some savings as the costs of storing gold are less than the fees” for the SPDR Gold Trust, the New York-based firm said yesterday in a letter to investors.

Einhorn, 40, told clients in January he was buying gold for the first time amid the threat of inflation from higher government spending. The firm, started in 1996, held 4.2 million shares of SPDR Gold Trust in the first quarter, making the gold- backed ETF its biggest holding. Gold has climbed 5.8 percent this year.

David Einhorn buys more gold as well

Yet another star hedge fund manager is increasing his holdings in gold. This time is David Einhorn which I had already reported about back in March: David Einhorn is buying gold to bet against central banks. And yet another report from MarketFolly which is doing a great job at following hedge fund managers and reading their SEC fillings.

Among the increased positions:
SPDR Gold Trust (GLD): Increased by 14%

Among the top 15 Holdings (by % of portfolio)

• 1: SPDR Gold Trust (GLD): 13.6% of portfolio
• 6: Gold Miners ETF (GDX): 4.8% of portfolio

Is gold starting to take off? Or is it that this trade is getting really crowded and it's going to be time to get off? Difficult to know on the short term. But for the long term, I am sticking to gold and waiting for a dip to increase the position. In the meantime, I have increased my holdings of silver via the SLV ETF.

David Einhorn is buying gold to bet against central banks

Interesting report on the FT. David Einhorn is a very talented hedge fund manager and I have been following the news on his fund for quite some time. I am glad to see that he is bullish on gold as well.

Hedge fund investors who made money last year by betting against investment banks are now buying gold as a way of betting against central banks.

The gold bulls include David Einhorn, founder of hedge fund Greenlight Capital, who last year came under the spotlight for his short selling of shares in Lehman Brothers, after arguing that the bank did not have enough capital to offset its exposure to falling property prices. Other funds looking at gold include Eton Park and TPG-Axon, investors said.
[...]
Investors such as Mr Einhorn are turning to gold because they are worried about the response of the US Federal Reserve and other central banks to the global economic crisis. A bet on gold is essentially a bet against all paper currencies.

“The size of the Fed’s balance sheet is exploding and the currency is being debased. Our guess is that if the chairman of the Fed is determined to debase the currency, he will succeed,” Mr Einhorn wrote in a recent letter to his investors. “Our instinct is that gold will do well either way: deflation will lead to further steps to debase the currency, while inflation speaks for itself.”
[...]
Peter Munk, chairman of Barrick Gold, the world’s largest miner of bullion, told investors last week that [...] “The only option to governments is to print and print more money,” he said. “That will end in tears.”