Greenlight's Einhorn: Buying S&P 500 and General Electric Puts

It would appear Einhorn is not a believer in the recent rally as he added puts in the S&P (SPY) and General Electric (GE) to his portfolio in the last quarter.

Maybe this is why? From Bespoke

A P/E ratio rising from 10 to 18.35 is what happens when the S&P 500 rallies 50% (the P) while earnings (E) continue to decline. Below we provide a chart of the S&P 500 price to earnings ratio since the start of the 2002 bull market using trailing 12-month diluted earnings per share from continuing operations.

The S&P's P/E ratio reached its highest level since the end of 2004 earlier this week. While P/E expansion is not unusual during bull markets, investors will remember that the S&P 500's P/E actually declined from the start to the finish of the '02-'07 bull. This is because earnings grew even faster than stock prices. When looking at the chart below, you can see that the P/E did expand in the early days of the '02-'07 bull before earnings finally started to grow again in late 2003 and early 2004. Obviously if the current bull is going to have any sustainability at all, earnings will have to start growing again. But for now, as evidenced by the skyrocketing P/E ratio, investors are paying up on the hopes of future earnings growth.

Full Filing

greenlight13f_082009

Comments

[Jason Tillberg:]

I bought some S & P puts on Friday as well. Dec 80 puts on SPY.

Aug 16 03:02 PM

[sethmcs:]

Well, if GE hits 12 I'll sell you some puts. If its going to happen let's do it quickly so I can charge a higher premium.

Aug 16 04:42 PM

[apppro:]

Why we still are letting these Generation Me short sellers dictate anything we do, is beyond me.
Has the destruction that followed Lehman's unneeded take down by Einhorn taught us nothing?
Has Bill Ackman's total destruction of the monolines through his distorted shorting of Ambac taught us nothing?
Why do we keep glorifying these individuals instead of throwing their sorry arses in jail for ruining it for the rest of us?
Who died and left them in charge of our collective morality and financial well-being?

Tom Armistead said it best above.

Aug 16 05:05 PM

[QuasiYoda:]

Your saying Einhorn orchestrated a takedown of Lehman is pure disinformation. There is probably a great analogy to put here but I can't think of it. So the outrageously excessive leverage used by Lehman had nothing to do with it? I forgot we live in an age where one is not responsible for the results of ones actions. Lehman found out differently when the Good Old Boy Club of Money Center Banksters cut them out of the bailout club. Lax Gov't Regulation and Risky Investing worked together to take Lehman out on thin ice.

And you fault the guy that recognizes "thin ice" when he sees it. Give me a break. I 'd love for him to educate our lawmakers and regulators on what the concepts of sound finance are all about in this overleveraged world.

The US would do better to slaughter the entitled mammoths of Money Center Banksters and others so we can move into the 21st century unencumbered by back office sweet heart deals where the Corporate Folly is Socialized and Corporate Greed is Privatized.


On Aug 16 11:44 AM Tom Armistead wrote:

> More likely Einhorn plans to orchestrate a takedown on GE the same
> as he did on Lehman. If successful. that would result in the S&P
> 500 going down rapidly, to say the least.
>
> I am not aware of anything to suggest that there is bad blood between
> Immelt and Geithner like there was between Fuld and Paulson. Plus
> the authorities have noticed that the collapse of a major financial
> institution has repurcussions and are unlikely to let personalities
> get in the way.
>
> Einhorn would do better for himself if he made positive bets on GE
> which is an American Icon, also on the S&P, which is undervalued.
> But if his bets are losers, as I think they are, I personally will
> be happy to see him lose money while I make it.

Aug 16 05:28 PM

[Mudduckk:]

SPY OCT 90 Puts. Nothing but hot air in this rally.

Aug 16 05:45 PM

[apppro:]

Quasi comments above are just another example of the standard line used to defend "The Shorting of America". Einhorn's major complaint with Lehman's was not so much the over leverage (which our Treasury OK'd) but rather the value of the underlying mortgages and bonds covering Lehman's Stockton, CA exposure. Thru the use of M2M he, and others, convinced us ALL that these CDO's were WORTHLESS. This destroyed the confidence in Lehman's and eventually brought them down. The over leverage may not have been a good idea, but it could have been delevered on a timely basis, but then the short sellers would have not had the profit they inevitably got. It goes without saying that now that FASB has fixed M2M we are now finding out these legacy assets that Einhorn and other said were worthless are now in reality just WORTH_LESS.

Aug 16 05:49 PM

[QuasiYoda:]

apppro's comments above are just another example of the standard line used to defend "The looting of the American Middle Class" and the Good Old Boy Elitist Club filling each other pockets at the expense of honest hard working Americans

apppro " (which our Treasury OK'd)"

Like I said "Lax Gov't Regulation and Risky Investing "

apppro "This destroyed the confidence" Yes that is how cons or confidence schemes are debunked. Your problem is you believe in Ponzi scheme finance.

Those short sellers are part of the market and they operate without the help of intervention in fact they have to withstand it. Gov't intervention merely enables criminal elements to defraud the public. To big to fail and to corrupt to fail is Money Center Bank Propaganda tool

If you're for gov't intervention to support corrupt corporate entities from a NeoCon Republican standpoint or a Democrat Standpoint I'm against you!

Aug 16 06:03 PM

[apppro:]

Yeah Yoda whatever, but don't listen to me, listen to Einhorm himself who wasn't complaining about leverge, but rather loses. These were M2M loses and should never had been at issue in the first place.
www.cnbc.com/id/158402...

All those loses of worthless investments are what Blackstone and Wibur Ross are now drooling over now thru the Legacy Asset program. Note they can't get them because the assets don't have to valued at $0 because M2M is gone - thru - no more!

Aug 16 06:12 PM

[QuasiYoda:]

apppro where do losses come from in such a situation? From not having enough money to back your positions . . . thus they were over leveraged, Hello?

I see you conveniently ignore the issues I bring up . . .

Aug 16 06:21 PM

[tennisplayer:]

I regularly discard the advise of th 'SKY IS FALLING IN' financial bloggers.The are wrong 90% of the time.
Tennis player

Aug 16 08:08 PM

[whidbey:]

The quencher is the lack of foundation for earnings growth. Where will it come from? Business will not expand its capital investments until final demand expends. With fewer jobs it is hard to see how that happens. This is a not a religious exercise in faith. We are doubters and with reason. Good article.

Aug 16 08:43 PM

[Dialectical...:]

Tennis,

I don't discount what you're saying about the doom and gloom crowd... but I have to say I am one of the folks wondering about how earnings are going to rebound in this environment quickly enough to satisfy a market that seems to have priced in a rapid recovery. I don't think this is "the end of America as we know it" but man this sure seems like we are set up for some tough slogging in the years ahead. A forward P/E of 16 for GE seems steep to me, given what lies ahead (or what looks like it to me anyway).



On Aug 16 08:08 PM tennisplayer wrote:

> I regularly discard the advise of th 'SKY IS FALLING IN' financial
> bloggers.The are wrong 90% of the time.
> Tennis player

Aug 17 01:41 AM

[Boris Yeltsin:]

He has only bet 1.6% of his portfolio on the GE puts. This doesn't look like a high conviction bet. And I think he will prove to be wrong in any case.

Aug 17 04:40 AM

[apppro:]

I don't ignore them. they're just wrong. leverage wasn't the issue. it actually only became an issue after the underlying CDO's, etc. were so badly rumorboarded and assigned implied 0 values, that shorts and rating agencies fell back on the leverage issue.
If we had not put M2M into effect (at the urging of short sellers) the underlying valuations would have NEVER reached the ludicrous points they were driven to and the leverage question would have never been called into prominance.
I agree and always have, that a couple of financial institutions (GS< LEH< AIG) and the Federal Governement 'CREATED' the underlying reasons for the crisis, BUT there is no question that it was 'CAUSED' by a small group of short sellers abusing the unregulated system.


On Aug 16 06:21 PM QuasiYoda wrote:

> apppro where do losses come from in such a situation? From not having
> enough money to back your positions . . . thus they were over leveraged,
> Hello?
>
> I see you conveniently ignore the issues I bring up . . .

Aug 17 07:20 AM

[Brian McMorris:]

There are only two reasons to cheerlead the destruction of the world financial systems, which many at Seeking Alpha (Quasi) apparently do.

1. A political agenda for the elimination of all government management of the financial system, in other words a completely "free market". I have another term for this concept. It is called "Anarchy". Great plan. Every many for himself. I have a little sympathy for this perspective. At least these people have some ideals (Ron Paul Libertarians).

2. Such cheerleaders are playing the market from the short side and are trying to profit from everyone else's misery. They don't care how many people they put out of work or homes. This is much more pathetic than the misdirected anarchists. News flash to Bear cheerleaders: you caught the planet's financial system flat-footed in 2008. It won't happen again. There are plenty of ways to cut you off at the knees. If you are a perma-bear, you will be bankrupt soon. Enjoy the next week, then get ready for more pain.

Aug 17 09:45 AM

[justin_3d:]

Nice mate. Great Play with the DEC puts! I did bought some puts on Thursday, while accumulating some shorts on the spy last week!

The puts provide me with a quick leverage, to make some extra cashola, to short some more when the market pulls back up a bit!

Aug 17 09:57 AM

[tedstr:]

You guys saying leverage was not the problem is like saying the teenager who had a few beers driving a wreck at 75 MPH on a country road, speed was not the problem when he kills himself.

Irresponsibility, equipment quality, bad judgement, and speed (leverage) ALL were the problem except that your odds of surviving the wreck at 20MPH are way better

Aug 17 11:12 AM

[QuasiYoda:]

Brian, you lead with ignorance of what a Free country and free markets are all about. It is not "anarchy" to have the market set interest rates. Had that been the fashion in which our interest rates had been set we would not be in the trouble we are now. In fact it is a Hell of a lot more orderly then private interest pushing their agenda onto the market. Market setting interest rates is how "free markets" would set rates as opposed to a single falliable Fed Chairman, like Easy Al Greenspan or Helicopter Ben Bernanke who dominate Fed Policy. Their Job is not to promote a stable currency and economy but simply to Promote and Protect the PRIVATE BANKS who own the Fed ie Large US money center banks like Citibank, Goldman Sachs, JPMorgan etc, Large English Money Center Banks and German as well.




On Aug 17 09:45 AM Brian McMorris wrote:

> There are only two reasons to cheerlead the destruction of the world
> financial systems, which many at Seeking Alpha (Quasi) apparently
> do.
>
> 1. A political agenda for the elimination of all government management
> of the financial system, in other words a completely "free market".
> I have another term for this concept. It is called "Anarchy". Great
> plan. Every many for himself. I have a little sympathy for this
> perspective. At least these people have some ideals (Ron Paul Libertarians).
>
>
> 2. Such cheerleaders are playing the market from the short side
> and are trying to profit from everyone else's misery. They don't
> care how many people they put out of work or homes. This is much
> more pathetic than the misdirected anarchists. News flash to Bear
> cheerleaders: you caught the planet's financial system flat-footed
> in 2008. It won't happen again. There are plenty of ways to cut
> you off at the knees. If you are a perma-bear, you will be bankrupt
> soon. Enjoy the next week, then get ready for more pain.

Aug 17 11:52 AM

[Brian McMorris:]

How does any recession end? It is obvious that end demand does eventually increase normally at a point where inventories have been run very low. This requires businesses to rehire workers and invest in expansion to meet the growing demand. The rehired workers add to the demand surge and a new virtuous cycle begins. It happens every time, with or without stimulus, though stimulus will make it happen faster.

I believe the doubters are mostly those who have not been through a business cycle before and have not seen it with their own eyes. If the doubter happened to be caught flat by the recent decline and lost big, that probably increase pesimissm. But economic growth always returns.


On Aug 16 08:43 PM whidbey wrote:

> The quencher is the lack of foundation for earnings growth. Where
> will it come from? Business will not expand its capital investments
> until final demand expends. With fewer jobs it is hard to see how
> that happens. This is a not a religious exercise in faith. We are
> doubters and with reason. Good article.

Aug 17 09:09 PM

[Brian McMorris:]

Quasi...It is not ignorant to believe that Central Banking can work to smooth the economy. It is just a more positive outlook on life. I am not a paranoid conspiracy advocate like others who believe religiously in the savlation of free markets.

Money is not a bushel of wheat or a barrel of oil. Sovereign currencies represent the wealth of a nation. It is that simple. A commodity exchange should not be allowed to control what represents the wealth of MY nation. Commodities can be cornered and manipulated, especially in a "free market", which means free of regulation. Haven't you learned this? It is in our national history (the Mellons, Carnegies and Rockefellers). That is why we have anti-trust laws. Where there is great wealth to be made, a supposedly free market will be manipulated. That is our reality.

I just choose to have the manipulators be ones who are in the public eye and therefore accountable to the public. I guess you and your brethren with your unregulated financial markets, would choose to have private hands, with who knows what agenda, manipulate interest rates and lending for their own purposes, with no visibility and no accountability. What you fear (big banks who operate in their own interests) is definitely what you would get in a Wild West world of banking (aka "free markets")

You with your cynical outlook may choose to believe that everything in government is corrupt and everything in the free market is pure. But I think it is more the opposite. It was the unregulated "shadow banks" (aka hedge funds) that brought down the financial system, not the Fed. Sorry.

Aug 17 09:24 PM