Wednesday, January 28, 2009

Einhorn on Stocks

David Einhorn's Greenlight Capital Reinsurance, a new venture, recently reported results:

It is interesting to note that Einhorn is still very bearish on financials. Moreover, he appears to be interested in European markets recently, both stocks and fixed-income, which may be rooted in skepticism about the U.S. dollar.


Reinsurance company Greenlight Capital Re (GLRE.O) is betting that some large financial companies' shares will fall further even though its portfolio is now more conservatively positioned than it was a few weeks ago, its chairman said on Wednesday.

"The portfolio is more net long than it was at the beginning of October," said David Einhorn, Greenlight Capital Re's chairman of the board. Einhorn also runs a New York-based hedge fund called Greenlight Capital and is well known for having questioned the health of investment bank Lehman Brothers before it filed for bankruptcy in September.

Einhorn told Greenlight Capital Re's shareholders on a conference call that mistakes in the portfolio have hurt the company.

Greenlight Capital Re reported on Tuesday a net loss of $117.8 million, or $3.29 per share loss, in the third quarter. Its share price was up 7.7 percent in morning trading on Wednesday to $13.45, curbing its year-to-date stock losses to around 40 percent.

Einhorn reminded shareholders that he never reveals his exact trading strategies but said the portfolio is still short large financial companies whose balance sheets remain exposed to the fallout from the current financial crisis.

The hedge fund manager also said the company is betting against companies that rely on consumers spending a lot of money, a trend researchers say is changing as growth slows and unemployment rises.

Looking back, Einhorn said the company miscalculated on how short positions would protect the protect the portfolio. "We should have been more conservatively positioned," Einhorn said, adding that the long side of the portfolio also suffered from "analytical errors in a few names."

Einhorn said the company's portfolio was hurt by a bet that carmaker Volkswagen AG's (VOWG.DE) shares would sink while they rose dramatically.

People who are familiar with Einhorn's hedge fund portfolio and the reinsurance company's portfolio say they are often very similar.

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