Greenlight's Einhorn advocates gold and gold stocks
The hedge fund manager has also criticized US policymakers for short-termism
Author: Jennifer Ablan and Joseph A. Giannone (Reuters)
Posted: Tuesday , 20 Oct 2009
NEW YORK (Reuters) -
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David Einhorn, the hedge fund manager who had warned on Lehman Brothers' precarious finances, on Monday said he is buying gold and betting that interest rates will rise as he lambasted the U.S. government's financial chiefs for short-sighted policy decisions.
The exploding size of the national deficit, which reflects government policies that have simply rewarded bad behavior with massive bailouts, will make gold and gold stocks as well as call options on higher rates good investments, said Einhorn.
Speaking at the fifth Annual Value Investing Congress in New York, Einhorn had harsh criticism for Federal Reserve Chairman Ben Bernanke and Treasury Secretary Timothy Geithner.
"Although our leaders ought to be making some serious choices, they appear too trapped in short-termism and special interests to make them," he said, calling Bernanke and Geithner "quintessential short-term decision makers.
"They explicitly do whatever it takes to solve one problem at a time and deal with the unintendend consequences later."
Einhorn, the president of Greenlight Capital, with more than $5 billion in assets under management, advocated buying both physical gold and gold stocks "if monetary and fiscal policies go awry."
He noted, "Gold does well when monetary and fiscal policies are poor and does poorly when they are sensible."
Gold rose to a record high last Wednesday above $1,070 an ounce.
Of the government's recent policies, he said, "Over the last couple of years, we have adopted a policy of private profits and socialized risks -- you are transferring many private obligations onto the national ledger."
According to a joint analysis by the Center on Budget and Policy Priorities, the Committee for Economic Development and the Concord Coalition, the projected U.S. budget deficit between 2004 and 2013 could grow from $1.4 trillion to $5 trillion.
Einhorn explained further why he favored investing in gold in the current economic and policy climate.
Last week, when Bernanke, Geithner and White House economic adviser Larry Summers spoke in interviews and on panel discussions, he said, "My instinct was to want to short the dollar, but then I looked at other major currencies -- euro, yen and British pound -- and they might be worse."
"Picking these currencies is like choosing my favorite dental procedure," he said. "And I decided holding gold is better than holding cash, especially now that both offer no yield."
THE WAY TO AVOID "TOO BIG TO FAIL"
Among structural issues that U.S. policymakers also need to address is avoiding another disaster of Lehman proportions, Einhorn said.
"The proper way to deal with too-big-to-fail or too-interconnected-to fail is to make sure that no institution is too big, interconnected to fail," he said.
The test, he said, should be that no institution is ever so individually important that if the U.S. were faced with its demise that the government would be forced to intervene.
"The real solution is to break up anything that fails that test," he said.
"The lesson of Lehman should not be that the government shouldn't have prevented their failure; the lesson of Lehman should be that Lehman should not have existed at a scale that would have allowed it to jeopardize the financial system," he said. "And the same logic applies to AIG (AIG.N: Quote), Fannie, Freddie, Bear Stearns, Citigroup (C.N: Quote) and probably a dozen of others." (Editing by Leslie Adler) |
