Einhorn Bets Big on Gold Amid Inflation, Eyes Value Stocks

Key Takeaway

• David Einhorn warns inflation may be reaccelerating, doubting the Federal Reserve will cut rates more than twice this year, if at all.
• Einhorn's Greenlight Capital significantly increases its gold holdings, including $74 million in SPDR Gold Trust and physical bars, as a hedge against fiscal policies.
• Despite market concerns, Einhorn sees value in stocks like Solvay after its spinoff into Syensqo, highlighting opportunities in undervalued companies.

Inflation Concerns Persist

David Einhorn, the hedge fund manager of Greenlight Capital, expressed concerns over persistent U.S. inflation, suggesting that bringing inflation down might be more challenging than investors anticipate. Despite expectations, Einhorn predicts "fewer than three" interest rate cuts from the Federal Reserve this year, with a possibility of none occurring. This perspective comes in light of recent U.S. data indicating a core personal consumption expenditures price index rise of 2.8% in February, surpassing the Fed's 2% inflation target. Einhorn's stance on inflation reaccelerating is supported by various indicators, highlighting the complexities facing the U.S. monetary policy.

Gold as a Defensive Play

Amidst inflation concerns and potential market downturns, Einhorn is increasing his investments in gold, viewing it as a hedge against loose monetary and fiscal policies. Greenlight Capital's significant position in gold, including physical bars and $74 million in the SPDR Gold Trust fund, underscores Einhorn's strategy to mitigate risks associated with fiscal deficits and policy challenges. This move reflects a broader trend among investors seeking safe-haven assets in uncertain economic times.

Value Investing Opportunities

Despite the overarching concerns, Einhorn identifies emerging opportunities in value stocks, particularly in companies undergoing spinoffs. He cites Solvay, a Belgium-based chemicals and plastics company, as a prime example, having picked up shares following its spinoff into Syensqo. Einhorn's investment in Solvay, despite its significant share price decline, illustrates his belief in the market's mispricing of value stocks. This approach is part of Einhorn's broader critique of the current market dynamics, where he sees a lack of investment in identifying undervalued companies.

Einhorn's Strategic Insight

Einhorn's investment philosophy focuses on identifying undervalued companies with strong growth potential, a strategy that has historically yielded significant returns for Greenlight Capital. His interest in Solvay aligns with this philosophy, emphasizing the company's market leadership and stable, high-margin businesses. Despite Greenlight Capital's slight underperformance compared to the S&P 500 last year, Einhorn's strategic moves, including his investment in Solvay and his defensive play in gold, highlight his adeptness at navigating market complexities and identifying potential growth opportunities.

Street Views

• David Einhorn, Greenlight Capital (Neutral on the market and inflation):

  "I think inflation is reaccelerating. I think there’s a lot of indication of that... fewer than three interest rate cuts from the Federal Reserve will take place this year — and that there’s a chance that no cuts actually take place."