Einhorn: “None Of The Problems From The Crisis Have Been Solved” – Full Q&A
by Tyler Durden
ZeroHedge.com
Mon, 01/01/2018
Two months ago, a downbeat David Einhorn mused rhetorically “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 recent speech at The Oxford Union in England, Einhorn made it clear how farcical he believes this market has become, pointing out that the problems that caused the global financial crisis a decade ago still haven’t been resolved.
“Do I think we’ve learned a lesson from the global financial crisis? It depends on what one thinks that the lesson was, unfortunately” Einhorn says 9’40” into the speech.
Infamous for his value investing style and bet against Lehman Brothers that paid off in the crisis, 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 look at all the obvious problems from the financial crisis, we really kind of solved none of them. And we went on a different way, and we basically, went the bailout route. And said we are going to create a whole lot of moral hazard, and we’re going to sweep as much of this stuff as in the rough under the rug as we can, and we are going to move on as quickly as we can. And so, that solved some things in some ways, but I think it is left the basic structure, more or less, as it was. And I think that it is susceptible to the same type of events or series of events sometime in the future.”
The Rest…HERE
