You know, at this point, I almost feel like it's distasteful to tacitly rub salt in the gaping wound that is David Einhorn by continuing to document the trials and tribulations of an investment strategy that, quite simply, isn't working anymore.
When last we checked in on David, he was waxing nostalgic (“Bubbles do pop, you know, or at least they used to") for a time when hedge fund titans could still make an honest fortune by betting on the demise of the global financial system.
The cruel irony - for David, at least - is that his ongoing underperformance is in no small part attributable to the dynamics engendered by the policy response to the bursting of the housing bubble.
That is, one reason bubbles don't pop anymore is because we seem to be bumping up against the theoretical limits of a kind of spiral dynamic. In an unanchored system, the policy response to each successive bust entails engineering a bubble large enough to subsume its predecessor. The end game is a bust so large that creative destruction is the only real resolution, but it's not clear that's a viable option anymore. Soup lines don't jive well with iPhones and all the other creature comforts that are fixtures of modernity in the developed world.
And so, policy makers will do what's necessary to avoid the purging of misallocated capital. In fact, they are now actively facilitating that misallocation, and on a grand scale. Cutting rates to zero (and below) and flooding the world with some $15 trillion in central bank liquidity drove investors out the risk curve and effectively created an environment where benchmarks are impossible to beat precisely because they aren't "allowed" to fall.
The interplay between cap-weighted indices and the passive funds that track them has created a veritable perpetual motion machine and the proliferation of smart-beta products has supercharged things by funneling ever more money into the same handful of growth names that are driving up the benchmarks. Unfortunately, David Einhorn is (basically) short this entire dynamic.
David's recent woes are well documented, here and elsewhere. In late February, on an earnings call for Greenlight Re, he admitted that he's “never underperformed like this” after saying he’s in the midst of his worst stretch since March of 2000. That came after an abysmal January. Greenlight fell another 2% in March and a further 1% in April.
The bottom line - as David has admitted and decried on any number of occasions - is that shit just doesn't make any sense anymore.
Given all of this, it comes as no surprise that Einhorn had another bad month in June, but what is perhaps a bit surprising is just how bad. Here's Bloomberg:
David Einhorn’s main hedge fund at Greenlight Capital fell 7.7 percent in June, bringing losses for the first half of this year to almost 19 percent, according to a client update seen by Bloomberg.
Einhorn’s losses this year bring the decline for New York-based Greenlight since the end of 2014 to roughly 28 percent, one of the worst showings among his peers.
I don't think I have to say this (and again, I almost feel bad for beating this dead horse), but that is egregious and apparently his investors agree because as Bloomberg writes in the same post linked above, they've yanked something like $3 billion from David in the last two years alone.
If you really wanted to, you could detail exactly what's gone wrong this year, but at this point that seems cruel and unusual considering everyone already knows the story.
What I would note is that the GM long looks particularly precarious in light of what is almost certain to devolve into a public feud between the company and the President of the United States. On Saturday, Peter Navarro accused GM of "playing into the hands of foreigners" following the company's Friday warning about the possibility that the imposition of tariffs could lead to U.S. job losses.
As far as the "bubble basket" and, more generally, the idea that gravity is about to reassert itself when it comes to the market's highfliers, is concerned, this is pretty much all you need to know:
We wish David the best of luck fighting the "good" fight in the back half of the year and paradoxically, it might be just as well if market conditions actually don't deteriorate too much.
Because all it's going to take to catalyze another painful (for Einhorn) leg higher in some of these "bubbly" names is a nod in the dovish direction from Jerome Powell, possibly in response to a deterioration in risk sentiment catalyzed by the same trade tensions that could continue to weigh on GM.