David Einhorn checked in with investors Tuesday, and the word is: meh. Greenlight Capital delivered returns of 1.3 percent against S&P gains of 6.1 percent in the first three months of the year. The quarter, he said, “was a quiet one.” But as a certified resident of Shortville (and not the one in Wisconsin), Einhorn is not exactly ready to be quiet about Tesla:
It was a difficult quarter to be short the bubble basket, and TSLA in particular. Perhaps as the prospects for tax reform have dimmed, the market has regained enthusiasm for profitless companies that aren’t at risk of paying taxes. A number of these stocks are back in full-blown momentum mode. Analysts continue to raise “target prices” which the market treats as news. The bulls explain that traditional valuation metrics no longer apply to certain stocks. The longs are confident that everyone else who holds these stocks understands the dynamic and won’t sell either.
We have discussed this phenomenon before. It is dreams that Elon Musk sells, not cars. Tesla can't be understood through rational pricing metrics, but semi-divine revelation. For a mathy guy like Einhorn, this kind of faith-based valuation is perplexing.
Anyway, this is all coming to a bad end, Einhorn assures us:
With holders reluctant to sell, the stocks can only go up – seemingly to infinity and beyond. We have seen this before. It’s painful for the shorts, as the TSLA CEO has been happy to remind everyone via Twitter. There was no catalyst that we know of that burst the dot-com bubble in March 2000, and we don’t have a particular catalyst in mind here. That said, the top will be the top, and it’s hard to predict when it will happen. Notably, a number of bubble stocks advanced despite missed expectations and/or falling estimates. The basket is sized appropriately with the understanding that twice a silly price isn’t twice as silly. In due time, we expect these bubbles to pop.
In the meantime, expect those shorts to continue to sting. Although Einhorn seems to deploy some Tesla math of his own to explain why his mistimed shorts weren't all that bad:
Our longs were profitable, though they went up a bit less than the market. Our shorts generated losses but added alpha, and gold gave us a small profit in macro.
We assume this means something to the effect of “my shorts lost money but not as much as a broader basket of popular shorts did.” But really, c'mon.