Einhorn: “None Of The Problems From The Financial Crisis Have Been Solved”
by Tyler Durden
ZeroHedge.com
Nov 16, 2017
A month ago, a downbeat David Einhorn exclaimed “will this market cycle never turn?”
Despite solid Q3 performance, Einhorn admitted that “the market remains very challenging for value investing strategies, as growth stocks have continued to outperform value stocks. The persistence of this dynamic leads to questions regarding whether value investing is a viable strategy. The knee-jerk instinct is to respond that when a proven strategy is so exceedingly out of favor that its viability is questioned, the cycle must be about to turn around. Unfortunately, we lack such clarity. After years of running into the wind, we are left with no sense stronger than, ‘it will turn when it turns’.”
Such an open-ended answer, however, is a problem for a fund which famously opened a basket of “internet shorts” several years prior, and which have continued to rip ever higher, detracting from Greenlight’s overall performance.
This, in turn, has prompted Einhorn to consider the unthinkable alternative: “Might the cycle never turn?” In other words, is the market now permanently broken.
While the Greenlight founder did not explicitly answer the question, in a speech yesterday at The Oxford Union in England, Einhorn made it extremely clear just how farcical he believes this market, and world, has become, pointing out that the problems that caused the global financial crisis a decade ago still haven’t been resolved.
“Have we learned our lesson? It depends what the lesson was,” Einhorn, the co-founder of New York-based Greenlight Capital, said at the Oxford Union in England on Wednesday.
Infamous for his value investing style and bet against Lehman Brothers that paid off in the crisis, Bloomberg reports that Einhorn said he identified several issues at the time of the crisis, including the fact that institutions that could have gone under were deemed too big to fail.
The scarcity of major credit-rating agencies was and remains a factor, Einhorn said, while problems in the derivatives market “could have been dealt with differently,” and in the “so-called structured-credit market, risk was transferred, but not really being transferred, and not properly valued.”
“If you took all of the obvious problems from the financial crisis, we kind of solved none of them,” Einhorn said to a packed room at Oxford University’s 194-year-old debating society.
Instead, the world “went the bailout route.”
“We sweep as much under the rug as we can and move on as quickly as we can,” he said.
The Rest…HERE
