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A "Confuzzled" Einhorn Compares Melt Up Market To Charlie Sheen, Gives Up On Hedging: Goes Long, Keeps Gold

Tyler Durden's picture


From the just released Greenlight Capital letter: "Much like Charlie Sheen, who seems to believe that all publicity is good publicity, recent market behavior suggests that we are in the part of the cycle where “all news is good news.” This was true for the broad market, which shrugged off the continued escalation of commodity prices, unrest in the Middle East, a catastrophe in Japan, tightening monetary policy outside the United States and a deceleration of domestic economic growth....this quarter we were repeatedly confuzzled when we read company news announcements that we expected to cause falling stock prices, only to see them rise instead – and sometimes sharply at that. Nonetheless, we believe that this environment is cyclical, and that it will continue this way... until it doesn’t. Since we don’t expect to be able to call the turn, we believe our best course is to concentrate on generating better alpha." In other words, shorting is for wimps. It appears everyone has now given up on hedging. Last time this happened was in the summer of 2008 when nothing could dent the market.

To wit:

We are in a particularly difficult environment for shorting stocks. In response, we have reviewed many of the names in our short portfolio. We covered more than a dozen lower confidence shorts during the quarter. We exited four successful shorts in the for-profit education industry, two foreign bank shorts (one at a small gain, the other at a large loss), a domestic bank short (at a loss), and a technology short (also at a loss). We also covered several others where performance exceeded our expectations. We kept our highest conviction older ideas (including MCO and St. Joe) and our highest conviction newer ideas (including the energy-technology stocks described above).

Next, Einhorn on QE and lack of deflation:

Here in the United States, our fears that quantitative easing would be a net harm to economic activity appear to be playing out. The prices of things people actually pay for including food, energy and healthcare continue to go up at an accelerated pace. While the corporate sector is flush with profits, consumers are being squeezed, and economic growth slowed during the first quarter.  Though we are thankful that you can buy an iPad 2 (which we highly recommend!) for the same price as the old iPad, thus helping reduce our published inflation measures.

On why QE2 is dailing:

While Chairman Bernanke claims that quantitative easing has succeeded in raising stock prices, it seems that equities have gone up for the opposite reason he proposed. According to Mr. Bernanke, Federal Reserve purchases of government bonds were supposed to raise their price so that they would be less attractive than other investments, including housing and equities. Investors would note the disparity and “rebalance” their portfolio to buy more houses and stocks, which would appear cheap compared to higher bond prices. This would support the housing recovery and make the equity market rise.

Instead, it appears that in response to quantitative easing, investors now fear inflation and have sold bonds. Interest rates have risen and housing prices have declined further. The housing recovery has faltered, creating another negative wealth effect and putting additional strain on the banking system. The money that the private sector would have lent to the government, had the Federal Reserve not printed the money instead, has gone to other goods, notably commodities and stocks to the extent investors see them as a better inflation hedge than bonds. Though the Federal Reserve has produced “research” that purports to show that quantitative easing has not caused commodity prices to rise, many observers disagree. As the Bank of Japan put it in March, “[I]t is safe to say that globally accommodative monetary conditions are a key driver of the rise in commodity prices by stimulating both physical demand for commodities and investment flows into commodity markets.”

As for his exposure to gold,which many speculated had declined:

At quarter end, the largest disclosed long positions in the Partnerships were Arkema, Delta Lloyd, gold, Pfizer and Vodafone Group.

And much more in the full letter:

Green Light

h/t Dealbreaker


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Mon, 05/02/2011 - 14:28 | 1230900 FunkyMonkeyBoy
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If everyone is long the market, the market keeps going up, right?

Mon, 05/02/2011 - 14:48 | 1230968 MarketTruth
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The market will keep going up... until it doesn't. (sarc)

Mon, 05/02/2011 - 15:02 | 1231042 Sudden Debt
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The market won't keep going up when more and more money goes into gold and silver and than they'll have to print even more and the circle starts all over.



Mon, 05/02/2011 - 15:22 | 1231125 rocker
rocker's picture

The market, (Godman Shafts, The Morque and Shity Bank), is so rigged right now.  This morning the makers saw money come in and Godman's software took it. Swoop. Gone. Unbelivable. Not. Standard Practice.  As Lord Blankfien once said, somebody has to take the opposite side to make a market.   

Mon, 05/02/2011 - 17:37 | 1231792 lynnybee
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Godman Shafts, The Morque & Shity Bank .    L.O.L. .    thank you for making me laugh today, that was so funny .

Mon, 05/02/2011 - 16:39 | 1231501 fiddler_on_the_roof
fiddler_on_the_roof's picture

Now I am starting to see Gold included with high flying silver in ZH posts. People started liking Gold again ? past few months silverbugs were running wild trouncing Gold. Now I see ZH crowd posting "Gold & Silver", when it was "only silver" before. Silver is mostly an industrial commodity than money.

I do not like silver because it gets used up and central banks don't hold it. We'll watch and see which is the winning horse. 


Mon, 05/02/2011 - 21:52 | 1232553 NidStyles
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You're right, JP Morgan doesn't hold silver.

Mon, 05/02/2011 - 23:01 | 1232704 Re-Discovery
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any port in a storm

Mon, 05/02/2011 - 14:53 | 1230992 Harlequin001
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No, not when everyone is in, but when everyone is getting in, which they currently are... slowly

Mon, 05/02/2011 - 15:06 | 1231060 covert
covert's picture

yes, until the credit runs out.


Mon, 05/02/2011 - 16:05 | 1231331 Ruffcut
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I usually compare charlie with a spoiled baby, being a mean drunk and addicted to steriods.

Ok, it fits. Close enuff.

Mon, 05/02/2011 - 14:29 | 1230902 RobotTrader
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He must have been short YHOO, AMZN, PCLN because those stocks are going wild today.

Mon, 05/02/2011 - 14:34 | 1230919 The Axe
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a 550 dollar stock up 10 is not wild....get the math book out...

Mon, 05/02/2011 - 14:45 | 1230959 gjp
gjp's picture

AMZN is something else.  Already up more than 10% since badly missing earnings for the third or fourth consecutive quarter (and after a service interruption in its cloud services around the same time) it skies relentlessly higher.  After slicing through the $200 'milestone', it's going for the triple double of 100 P/E and 100 billion market cap, I guess.  Madness.

Tue, 05/03/2011 - 01:50 | 1233014 jeff montanye
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john hussman notes that the only other post ww2 times of as extremely overvalued, overbought, overbullish equities markets in a rising yield environment are august 1987 and the summer/fall of 2007.

Mon, 05/02/2011 - 14:34 | 1230911 Mercury
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Pretty simpatico with ZH from beginning to end I should say.

Mon, 05/02/2011 - 14:37 | 1230913 TruthInSunshine
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Tigerblood...the markets are NOT down 50%+ from here because of Tigerblood infusions.


Actually, we're going to go back to subprime and NINJA loans on autos, homes, furniture, electronics, and maxing out the credit cards, baby, because that's how fractional reserve 'Modern Money Mechanics' economies ROLL! Take away the crack or meth for a few days, and the shakes and convulsion rip every fiber of the junky apart at the seams.

All is well that ends well!

Mon, 05/02/2011 - 14:58 | 1231004 Harlequin001
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and then over rate them and place them as collateral at the Fed, regardless of real worth for a cash loan to keep the system rolling...


Mon, 05/02/2011 - 14:38 | 1230926 firstdivision
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The best time to hedge is when no one is hedging.  With vol this low and interest pushing long only, I am picking up some cheap puts (IMO, on quality names) for EOY. 

Mon, 05/02/2011 - 14:38 | 1230930 treemagnet
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The smartest guy I know once made a killing in penny stocks - he was up some ridiculous percentage and couldn't believe his good fortune.  He called his broker (years ago) and instructed him to which the broker (same guy who turned him on to said "great deal") replied..."To who?!"  That, is whats comin' our way.

Mon, 05/02/2011 - 14:46 | 1230954 SheepDog-One
SheepDog-One's picture

Exactly, markets may be 'going up' but thats totaly meaningless if theres no one to sell to.

No thanks, I likely wont touch stocks ever again after seeing month after month of this ridiculous clownshow.

Mon, 05/02/2011 - 16:03 | 1231320 Cursive
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You have just explained the future for anyone who cares to listen. The only thing I'll add is that I think Einhorn probably isn't going go long, at least not in a big or moderately big way.

Mon, 05/02/2011 - 16:09 | 1231355 unclebigs
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Silver Bugs are finding out the hard way today. LMAO!!!!

Mon, 05/02/2011 - 21:56 | 1232563 NidStyles
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That's odd, because I don't know anyone selling.

Mon, 05/02/2011 - 14:36 | 1230931 Piranhanoia
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"Last time this happened was in the summer of 2008 when nothing could dent the market."

No one would guess why the money machine stopped working at Allmart. No one could buy, so the food rotted.  The farmers started setting up in the parking lot to barter for food with the starving citizens. The militia had to protect the food, so Farmer's Market took over Allmart and 20% of the town was employed again where only 3% were before.

Mon, 05/02/2011 - 14:43 | 1230944 Wynn
Wynn's picture

Last time this happened was in the summer of 2008 when nothing could dent the market.

Shouldn't that read 2007? I seem to remember 08 as being a little bit turbulent, especially in the financials.

Tue, 05/03/2011 - 01:56 | 1233017 jeff montanye
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you are right.  the top was october 2007.

Mon, 05/02/2011 - 14:43 | 1230949 Bleeping Fed
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I think it's time for a new poll: Which black swan will land first and spoil the party?

Mon, 05/02/2011 - 15:23 | 1231144 rocker
rocker's picture

Didn't ZH give us a great hint this morning.  Bombers flying over where?  This is the second time it has been reported.

Mon, 05/02/2011 - 14:44 | 1230951 monopoly
monopoly's picture

yup. lets just max out our credit cards, take a cruise, buy and Ipad 2 and a 3rd flat panel tv. Oh, and how about a new care with little down and 0 interest for 5 years. All is good.,

This is so upside down.

Mon, 05/02/2011 - 14:57 | 1230960 plocequ1
plocequ1's picture

Who gives a fuck. Charlie Sheen gave the green light on Bluestar, Made a fortune and fucked Gordon Gekko at the same time. What ever works. Charlie Sheen says Blue horseshoe and Lucabrasi love PCLN

Mon, 05/02/2011 - 14:46 | 1230961 RobotTrader
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Speaking of credit cards, AXP now in a full blown meltup while oil and gold stocks are getting brutalized.

Strange tape......

Mon, 05/02/2011 - 14:51 | 1230975 Internet Tough Guy
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TZOO down another 4% today. You must be puking blood on your monitor.

Mon, 05/02/2011 - 15:03 | 1231035 traderjoe
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No, he doesn't discuss them anymore after the blow up. That's not how he rolls/trolls...

Mon, 05/02/2011 - 14:57 | 1231012 Harlequin001
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Gold at $1555 is 'getting brutalized'?

Mon, 05/02/2011 - 15:04 | 1231052 sleepingbeauty
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I think robotrader said Gold Stocks and I think you quoted the physical price...haven't looked at any Gold stocks but they don't seem to track the Gold spot.

Mon, 05/02/2011 - 15:27 | 1231147 SheepDog-One
SheepDog-One's picture

The RainbowTrader reviews his pumper charts, then discards any that are down while posting the ones that happen to be up. Thats what  RainbowTradin is all about!

Mon, 05/02/2011 - 15:29 | 1231154 rocker
rocker's picture

Don't they usually drive oil stocks down right before driving season, then hurricane season and then winter season?

What season is it now ?  Rip Off Season.  LOL

Mon, 05/02/2011 - 16:10 | 1231350 Ruffcut
Ruffcut's picture

Rip off season. I like it.

Can I still wear shorts and a t-shirt?

Or ask osama, it is the killing season.

Does that mean will not be appearing on dancing with the stars?

Mon, 05/02/2011 - 14:48 | 1230971 monopoly
monopoly's picture

Small caps lagging. A kink in the armor?

No shorts.

Mon, 05/02/2011 - 15:07 | 1231067 Comrade de Chaos
Comrade de Chaos's picture

Whoever panics first, often loses the least. ..

Insanity bych....s !





Mon, 05/02/2011 - 15:19 | 1231107 nontaxpayer
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Yes, if you want to panic, panic first!

Mon, 05/02/2011 - 15:11 | 1231075 Leo Kolivakis
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Nothing to be confused about, keep buying the dips, she's headed much, much higher...

Mon, 05/02/2011 - 15:38 | 1231191 Arrowflinger
Arrowflinger's picture


Sprott is selling silver.

Mish sold his.

Jantzsen sold his.

Einhorn quit shorting stocks and holds gold, for now....

My silver bug antennae are picking up decidely negative impulses.

Maybe the rules of math have indeed been suspended and the Fed really can paper over $trillions in toxic assets and $tens of trillions in debt with 30 month rollover, while fueling stocks higher.







Mon, 05/02/2011 - 16:45 | 1231532 fiddler_on_the_roof
fiddler_on_the_roof's picture

Eric Janzen of iTulip sold silver just few days ago. He has been a top oracle in precious metals for more than a decade and his track record on this has been the best. Ignoring him is dangerous for silver bugs.

Mon, 05/02/2011 - 15:47 | 1231251 TraderMark
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Waiting for Roubini to dump economics and start the BTFD hedge fund.

Mon, 05/02/2011 - 16:14 | 1231364 Ruffcut
Ruffcut's picture

Roubini will only dump down his shorts and buy the fucking hooker.

Fucking whoremongering, self serving, weasel bitch. The CV of the economist.

Mon, 05/02/2011 - 16:16 | 1231370 Greater Fool
Greater Fool's picture

If a "pro" like this guy can stay in business losing 3% on Q1 2011, when any idiot could make 3% by pulling up e*Trade and falling asleep on the keyboard, then I think we should all be starting hedge funds ASAP.

Mon, 05/02/2011 - 16:12 | 1231325 Ted K
Ted K's picture

I guess since Einhorn is long the market and not short, the bankers don't have to let loose their lapdog Sorkin out of the cage now???? Now Einhorn's even quotable.  Nice of editor Sorkin to take a break from licking the big banks' ass to give Einhorn a couple paragraphs in Dealbook.  What a sweety.

Mon, 05/02/2011 - 16:10 | 1231359 equity_momo
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Greenlight Winning

Mon, 05/02/2011 - 19:10 | 1232129 PulauHantu29
PulauHantu29's picture

Yes, good time to add more oil, silver and gold. Housing will continue to fall; the Fed cannot let interest rates rise of their debt service will soar and banks will plunge.

So what will they call QE3 to fool the Sheeples?


Mon, 05/02/2011 - 20:01 | 1232269 Occams Aftershave
Occams Aftershave's picture

Color me innumerate, but in Einhorn's first paragraph, the "(2.9)%", does that mean the Fund lost -2.9% for the quarter?   Or are those parentheses there to sort of buffer that tiny number from sophisticated customer disappointment?

Tue, 05/03/2011 - 08:11 | 1233286 Sathington Willougby
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It doesn't an Austrian to know 

fake money generates false signals

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