In David Einhorn's latest letter, in which we find that Greenlight had a solid quarter in Q3, generating a 3.4% return which boosted the hedge fund's YTD return to 3.8%, we also learn that the poker playing-head of Greenlight is not a fan of Elon Musk; Einhorn also lashes out at the Fed although since Greenlight's antipathy toward the Federal Reserve has been well known for years, this is not exactly new.
Einhorn starts off by quoting from Dave Pell: “It’s pretty amazing that we live in an age when a CEO of two public companies can give a talk about colonizing Mars and shareholders don’t see that as a warning signal”, and added that "It’s not so amazing when one considers that those same complacent shareholders have been willing to look past years of over-promising and under-delivering from a promotional CEO. Elon Musk’s ability to spin a yarn and keep a story going seems to mesmerize his investors, blinding them to the challenges the company is facing."
Something tells us TSLA is one of Einhorn's more prominent shorts. And speaking of shorts, in the next part of the letter Einhorn then lashes out at central bankers, in typical fashion:
In contrast, we have central bankers who are determined to see flashing lights that aren’t there. We are more than seven years into an economic recovery, yet central bankers behave as if we’re still in crisis. Not only are experimental emergency policies being maintained, they are being expanded despite little evidence that they are needed or helpful. The newest manifestation comes from Japan, where the central bank has committed to monetize the entire government bond market if needed to keep the ten-year rate at zero. Leading economists are currently destigmatizing the idea of fiscal policy stimulus financed by direct money printing, so that goes into the coming attractions queue.
Einhorn next engages in everyone's favorite exercise: just what "data" is the "data-dependent" Fed reacting to:
With U.S. unemployment at 5% and the core CPI rising 2.2% over the last year, it is difficult for the “data dependent” Fed to further rationalize emergency rates based on its official dual mandate. It appears that the real criteria for raising rates are:
- Market forecasters fully expect a rate increase.
- The most recent move in the S&P 500 was positive.
- There is no trouble in foreign economies or financial markets.
- There are no potentially destabilizing geopolitical events, including foreign elections.
- The Cubs win the World Series.
At the most recent Federal Reserve meeting, Chairwoman Janet Yellen indicated that the case for raising rates had strengthened, and three governors voted to do so, yet the Fed decided to wait.
Einhorn's conclusion is spot on:
"Clearly there is little appetite for normalizing policy, even under normal conditions. Instead of defending the continued easy money policy, Chairwoman Yellen recharacterized it as only “modestly accommodative.” She also denied that the U.S. election drove the decision, which makes her politically neutral enough to moderate a presidential debate."
In light of today's FBI developments, and should Hillary lose the election, perhaps the next Fed move will be a rate cut should the market proceed to tumble having priced in a Clinton election.
His full letter is below.