"We've Never Underperformed Like This": Einhorn Has Worst Month Since March 2000

David Einhorn's performance woes keep getting worse.

One month after the Greenlight founder sent a letter to clients disclosing that the fund had declined 1.6% in Q4 (bringing its total 2017 return to just 1.6%, below the average hedge fund's 6.5% return and the S&P's 22%) saying "this must be frustrating to you", he proceeded to have an abysmal January, in which his main hedge fund lost another 6.6%, its worst monthly loss since 2008.

At the time, the firm attributed most of its poor performance to losses in the last week of the month, when the market melted up, led by the stocks that comprise Einhorn's short basked: "Our long portfolio only achieved about half the S&P 500 return, while our short portfolio went up more than twice the index," Greenlight wrote, adding that many shorts rose 15 percent or more. "We believe the valuation spread between our longs and shorts is as wide as we can remember."

While all of Greenlight’s five top disclosed long holdings - AerCap Holdings, Bayer, Brighthouse Financial, General Motors and gold - made money in January, they were more than offset by declines in the short portfolio, according to the note. Netflix, a member of Greenlight’s “bubble basket,” surged more than 40% in January, while shares of Amazon.com and Tesla also soared.

Well, fast forward one month when Einhorn's recurring message to his investors was once again quite applicable.

During a conference discussing results for the Cayman-based Greenlight Capital Re, Einhorn had more "frustrating" news to investors: "While we’ve never underperformed like this, our prior worst underperformance compared to the S&P came in March of 2000, which was a similar environment."

Repeating the mantra from his recent letters, Einhorn expressed hope that value stocks will once again be bought... soon... maybe: “While the environment has remained difficult with growth stocks accelerating their outperformance against value stocks this year including February, we think a reversion may finally be coming soon."

Now all that Greenlight needs for this prediction to come true is a market crash .

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And while Einhorn clearly needs some luck from a harsh market which keeps rewarding money-losing tech stocks while punishing undervalued cash cows, it could have been worse: as we showed this morning, nothing compares to the bloodbath experienced this month by the systematic, CTA, trend-following quant community which got smoked after the VIXplosion in early February, as shown below.

Comments

Baron von Bud BurningFuld Wed, 02/21/2018 - 13:38 Permalink

Einhorn and many other insider hedgies have benefited from Fed manipulation of bond rates and stock prices. With the Fed allowing bonds to roll off, credit is drying up and the game is ending. Einhorn had a great group of years playing this anti-saver Fed Fraud but the wheel has begun turning backwards. He should grab what mega-millions he can extract and get out. Write a book explaining why he's a genius but don't ever mention that you got the Fed birdie to tell you their plan and that's how you profited.

In reply to by BurningFuld

Richard640 Wed, 02/21/2018 - 10:29 Permalink

DEAR DAVID AND ALL OTHER FIDUCIARIES: STOP WASTING MONEY "HEDGING" YOUR LONGS WITH SHORTS AND PUT OPTIONS=the Fed will not let the stock market sustain a meaningful sell-off ******************************************

2-15--DO NOT WASTE MONEY BETTING AGAINST STOCKS-HERE'S WHY=

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I have a good friend/colleague who works at big public pension fund. He did a “stress test” study with the data available to him on all big public pensions. He concluded that, based on the current stated amount of underfunding at every big pension fund, if the Dow/SPX declined 10% or more over a sustained period of time – where “sustained period” is defined as 3-4 month – every public pension fund in the country would collapse.

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The Fed added $11 billion to its SOMA account for the week ending yesterday. It purchased $11 billion in mortgage securities directly from banks. This injects $11 billion into the banking system. Cash is “high powered” money, meaning it can be leveraged 10x (banks need to hold 10% in reserves against “high powered” money. $11 billion is $110 billion of leverage for the banks to use for activities such as propping up the stock market.

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This certainly explains why there appears to be another “V” recovery in the stock market after a near-10% drawdown in the Dow and the SPX. This is very similar to the 10% market plunges in August 2015 and January 2016, both of which were followed with highly unusual “V” recoveries.

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You’ll note in the graphic above that the three 10% drops in the Dow since August 2015 were followed with sharp, “V” recoveries. Each one encompassed 10% drawdowns which were remarkably brief. The latest 10% plunge has been met with an equally forceful recovery, with the 10% decline allowed to persist for less than three trading days.

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 These factors discussed explain why the Fed will not let the stock market sustain a meaningful sell-off 

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Lord Peter Pipsqueak Richard640 Wed, 02/21/2018 - 13:23 Permalink

I also have a "FRIEND" who has discovered via contacts, that very large asset managers in the US have been designated "financial institutions of significance", which means that like the banks after the GFC, they have been targeted to prevent the next meltdown, if there is a big selloff, they will close down, this was shown the other week when Fidelity, TRowe Price, Vanguard,Schwab all had website "issues" and clients were unable to trade for long periods.

So if the big one does come, huge numbers of people will not be able to sell, trappped into falling markets, but why would these institutions go along with this?

Regulation - if they don't - they would pretty soon find they were being investigated and their activities suspended until further "checks or compliances were found to be in order etc etc", at a state and federal level they would literally be tied up in compliance, adminstrative and legal knots for years -or they could just agree to put up a "sorry we are having technical issues at the moment, we are working on it...." every time a crash occurs.Which one do you think they chose?

The other week was just afew percent drop, and they all complied, along with the banks who will also close and the ATMS you won't be able to get your money out.

So to Hugh Hendry, Crispin Odey and DavidEinhorn, keep throwing your clients(and your own) money away. They aint lettin this sucker go down.

In reply to by Richard640

DipshitMiddleC… Wed, 02/21/2018 - 11:00 Permalink

the algos/quants took over and normal accounting/fundamental metrics do not matter anymore.

 

RenTec, De Shaw and 2 Sigma ingest petabytes of data everyday to trade EVERYTHING

 

these long/short guys are just a bunch of yeshiva boys with accounting degrees. 

 

 

Rex Andrus Wed, 02/21/2018 - 12:40 Permalink

Does this mean I'm finally going to see the evil old pussyhats who tormented me and discriminated against me in K-16, HR, legal & tax agencies on the curb in rags, begging?