Fund Manager David Einhorn Buying Gold and Miners, Reluctantly

Hedge fund manager David Einhorn, who predicted the fall of Lehman Brothers and was generally spot-on in late '07 and early '08 regarding undisclosed risks at the large banks, recently initiated a position in gold in his fund, Greenlight Capital. In his January 20, 2009 letter to investors (cited in brief by BusinessWeek and Bloomberg), Einhorn writes:

We never thought we would ever buy gold or gold stocks... David's grandfather Benjamin was a goldbug... And it was a lousy investment. Being a patient investor is one thing. Being 'wrong' for three decades is quite another.

To everyone's dismay, we believe that some of Grandpa Ben's predictions are playing out. Our current chairman of the Federal Reserve, Ben Bernanke, is an 'inflationist.' ... The size of the Fed's balance sheet is exploding and the currency is being debased... Our instinct is that gold will do good either way; deflation will lead to further steps to debase the currency, while inflation speaks for itself. We have bought gold, calls on gold, an index of gold mining stocks (GDX) and calls on higher long-term U.S. interest rates.

See more of Greenlight's current holdings in this recent post from Market Folly.

Comments

[Cesato:]

Good one Rolex18K this is a typical investment disclosure aiming to influence individual investors mindset in order to support a position the Fund may have in fact initiated, but do we know performance figures of the Fund so as to believe they are actually good? Come on I did predict Lehman Brothers failure as well, my little girl would have predicted it If I had asked her under the conditions of the crisis initiated in 2007. Buy Gold because you believe in Gold, Buy Gold because the 4 year cycle has shown that from 2000 through 2004, the price rose 100% and then from 2004 through 2008 rose yet another 100% and if the expectacions for the second round effect of the change in money supply and hyperinflation are fixed in investors mind plus the projection of loss in purchasing power comes true, no question Gold will rise another 100% in the next 4 year cycle. If you look at the 4 year cycle the correction last year went a bit down below the middle of the 500 - 1000 range, good buying point we'll not see it again though so 850 looks closer but buying over 900 is guarante of a painful short term wait "in red". If the econimic conditions support the next 4 year cycle then we may see Gold at 2.000 in 2012 not in June 2009 as some may eventually predict on a break of 1.000.

Jan 30 07:37 AM

[Ian R. Camp...:]

I studied ‘Gold as an Investment’ from 20,000 feet last fall, and published an 11 post series on stockresearchportalblo.... I found that gold commentators focus on gold prices rising in an inflation, and generally do not focus on ‘purchasing power’ – the thing I think they ought to focused on. I concluded like Einhorn, and only time will tell if I am right, that gold will serve investors better in deflationary times than will fiat currencies. if interested, you can find my reasoning by visiting my Blog, clicking on the 'Gold as an Investment' category, and reading the 9th Post of the Series.

Jan 30 08:36 AM

[nmelendez:]

Well if you follow elliot wave this should be the start of wave 3 up. Kinda like from 1980 to 2000. If you follow dow/gold gold is now at about 9:1 compare to 43 :1 in 2000. If you follow the gold cycle we reached the 40 year gold bottom in 1998. So which indicator is telling me gold is going down? Gold went up during the 2001 bust, went up during the 2006 boom and is again going up during this bust. So what's wrong with going with the flow. You will again stop hearing about gold after the second quarter this year and it will slowly creep up. It's a very quiet commodity, even over the hu-ha.

Jan 30 09:08 AM

[Jingle-Jangle:]

Democrats keep wanting us to believe that that they are the smartest people on the planet. Typically politicians are NOT the smartest but the smarmiest people on the planet.
Now that democrats are in charge of everything, expect unbridled greed leading to insane spending with only crumbs going to any type of stimulus.
Remember, Obama said, change comes from the bottom up. So, expect the bottom to come fast and stay long.
There will be shortages of everything real soon so stock up. Just think Jimmy Carter on steroids.
Gold and silver are a no brainer no matter what anybody says.

Jan 30 09:29 AM

[Market Folly:]

Rolex18K,

I suggest you take a second to even learn about hedge funds... all of the things you say are misinformation and sheer ignorance. Greenlight's website doesn't let you read about them because they are a hedge fund and hedge funds are open only to accredited investors. You have to have a net worth of $1 million or make over $250,000 annually to qualify. Hedge funds cannot advertise or market either. So, as such, they have to keep a low profile as that is one of the regulations on them.

Go read up on them before making asinine statements. Greenlight has been around since 1996 and their main fund has returned 20% annually. Do the math.

For more info on Greenlight/Einhorn and their recent portfolio updates, as well as their investor letter in its entirety, we've covered it here: www.marketfolly.com/20...

Jan 30 11:06 AM

[auto44:]

I hope by now that the readers of finding alpha are on to rolex 18k.


On Jan 30 11:06 AM Market Folly wrote:

> Rolex18K,
>
> I suggest you take a second to even learn about hedge funds... all
> of the things you say are misinformation and sheer ignorance. Greenlight's
> website doesn't let you read about them because they are a hedge
> fund and hedge funds are open only to accredited investors. You have
> to have a net worth of $1 million or make over $250,000 annually
> to qualify. Hedge funds cannot advertise or market either. So, as
> such, they have to keep a low profile as that is one of the regulations
> on them.
>
> Go read up on them before making asinine statements. Greenlight has
> been around since 1996 and their main fund has returned 20% annually.
> Do the math.
>
> For more info on Greenlight/Einhorn and their recent portfolio updates,
> as well as their investor letter in its entirety, we've covered it
> here: www.marketfolly.com/20...

Jan 30 11:25 AM

[silverwood:]

Funds such as this one and others who are buying real physical and taking delivery from the Comex will be the leveling action of the playing field requiring the Comex Short Sellers Gang to have gold in their possession. With that sceptic’s attitude maybe this fund is going to send the Comex gang a good 250,000 volt shock. It is a real possibility as this fund is one of the most notorious of the bank short sellers.

That would be the rest of his Grandpa’s advice.

Jan 30 12:18 PM

[Market Folly:]

Rolex18k,

Yes, Greenlight was down for 2008... wouldn't that go AGAINST your argument that they are a fraud? If they were a fraud like Madoff, why would they have a down year? Also, that "secret" you found out, you probably found out from reading the post on my blog that I linked to earlier. Bravo, you can read. No one ever said they weren't immune... don't know where you got that from.

At any rate, did you ever see Madoff in the media or commenting about his investments before all this? No. Einhorn is ridiculously smart and all you have to do is go through and read some of his investor letters, read his book, listen to him talk at major media appearances, etc. I'm almost speechless that you are comparing the two. Clearly the Madoff incident has made everyone paranoid.

Go find out some more "secrets" about Greenlight on my blog and then get back to me with your vendetta.. oops I mean "insight."

This will be my last response on this because based on your previous retorts, this will just go in circles.

Jan 31 01:17 AM

[Conan the B...:]

Auto44: Yes, Rolex18k is very steadfast in his views.

Market Folly is also fixated with the same type of Articles with links that Always support their Views.

Does that give Market Folly the right to say:

"Go read up on them before making asinine statements."

???

Jan 31 01:36 PM

[Conan the B...:]

ROLEX18K: Keep up the good work. If everyone had identical views, we would be a nation of zombies.

The fact is that Market Folly has published more Articles than it has comments on, that should speak for itself.

Feb 01 05:17 AM

[ironpants:]

Einhorn is under investigation by the FBI.

Feb 24 06:36 AM