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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 | Link to Comment FunkyMonkeyBoy
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If everyone is long the market, the market keeps going up, right?

Mon, 05/02/2011 - 14:48 | Link to Comment MarketTruth
MarketTruth's picture

The market will keep going up... until it doesn't. (sarc)

Mon, 05/02/2011 - 15:02 | Link to Comment Sudden Debt
Sudden Debt's picture

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 | Link to Comment 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 | Link to Comment lynnybee
lynnybee's picture

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 | Link to Comment 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 | Link to Comment NidStyles
NidStyles's picture

You're right, JP Morgan doesn't hold silver.

Mon, 05/02/2011 - 23:01 | Link to Comment Re-Discovery
Re-Discovery's picture

any port in a storm

Mon, 05/02/2011 - 14:53 | Link to Comment Harlequin001
Harlequin001's picture

No, not when everyone is in, but when everyone is getting in, which they currently are... slowly

Mon, 05/02/2011 - 15:06 | Link to Comment covert
covert's picture

yes, until the credit runs out.

http://covert2.wordpress.com

 

Mon, 05/02/2011 - 16:05 | Link to Comment Ruffcut
Ruffcut's picture

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 | Link to Comment RobotTrader
RobotTrader's picture

He must have been short YHOO, AMZN, PCLN because those stocks are going wild today.

Mon, 05/02/2011 - 14:34 | Link to Comment The Axe
The Axe's picture

a 550 dollar stock up 10 is not wild....get the math book out...

Mon, 05/02/2011 - 14:45 | Link to Comment 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 | Link to Comment jeff montanye
jeff montanye's picture

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 | Link to Comment Mercury
Mercury's picture

Pretty simpatico with ZH from beginning to end I should say.

Mon, 05/02/2011 - 14:37 | Link to Comment TruthInSunshine
TruthInSunshine's picture

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 | Link to Comment Harlequin001
Harlequin001's picture

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...

Peachy...

Mon, 05/02/2011 - 14:38 | Link to Comment firstdivision
firstdivision's picture

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 | Link to Comment treemagnet
treemagnet's picture

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 sell...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 | Link to Comment 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 | Link to Comment Cursive
Cursive's picture

@treemagnet

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 | Link to Comment unclebigs
unclebigs's picture

Silver Bugs are finding out the hard way today. LMAO!!!!

Mon, 05/02/2011 - 21:56 | Link to Comment NidStyles
NidStyles's picture

That's odd, because I don't know anyone selling.

Mon, 05/02/2011 - 14:36 | Link to Comment Piranhanoia
Piranhanoia's picture

"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 | Link to Comment 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 | Link to Comment jeff montanye
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you are right.  the top was october 2007.

Mon, 05/02/2011 - 14:43 | Link to Comment Bleeping Fed
Bleeping Fed's picture

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 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment RobotTrader
RobotTrader's picture

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 | Link to Comment Internet Tough Guy
Internet Tough Guy's picture

TZOO down another 4% today. You must be puking blood on your monitor.

Mon, 05/02/2011 - 15:03 | Link to Comment traderjoe
traderjoe's picture

No, he doesn't discuss them anymore after the blow up. That's not how he rolls/trolls...

Mon, 05/02/2011 - 14:57 | Link to Comment Harlequin001
Harlequin001's picture

Gold at $1555 is 'getting brutalized'?

Mon, 05/02/2011 - 15:04 | Link to Comment sleepingbeauty
sleepingbeauty's picture

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 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment monopoly
monopoly's picture

Small caps lagging. A kink in the armor?

No shorts.

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

Whoever panics first, often loses the least. ..

Insanity bych....s !

 

 

 

 

Mon, 05/02/2011 - 15:19 | Link to Comment nontaxpayer
nontaxpayer's picture

Yes, if you want to panic, panic first!

Mon, 05/02/2011 - 15:11 | Link to Comment Leo Kolivakis
Leo Kolivakis's picture

Nothing to be confused about, keep buying the dips, she's headed much, much higher...

Mon, 05/02/2011 - 15:23 | Link to Comment icm63
Mon, 05/02/2011 - 15:38 | Link to Comment Arrowflinger
Arrowflinger's picture

Lessee.

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.

Naah.

 

 

 

 

 

Mon, 05/02/2011 - 16:45 | Link to Comment 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 | Link to Comment TraderMark
TraderMark's picture

Waiting for Roubini to dump economics and start the BTFD hedge fund.

Mon, 05/02/2011 - 16:14 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment equity_momo
equity_momo's picture

Greenlight Winning

Mon, 05/02/2011 - 19:10 | Link to Comment 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?

GL!

Mon, 05/02/2011 - 20:01 | Link to Comment 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 | Link to Comment Sathington Willougby
Sathington Willougby's picture

It doesn't an Austrian to know 

fake money generates false signals

Tue, 05/03/2011 - 14:38 | Link to Comment Grand Supercycle
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