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- David Einhorn warned the Russia-Ukraine conflict could pull the US economy into recession.
- The Greenlight Capital boss accused the Fed of doing too little to combat inflation.
- Einhorn dismissed concerns that the housing market is a bubble about to burst.
David Einhorn warned the Russia-Ukraine conflict could tip the US economy into a
recession
, and accused the
Federal Reserve
of moving too slowly to curb inflation, in his first-quarter letter to Greenlight Capital’s investors, which was published by ValueWalk this week.
The elite investor’s hedge fund returned 4.4% last quarter, bucking the S&P 500’s 4.6% decline. Einhorn explained why the US government may be exacerbating the energy crisis, and dismissed fears of an impending housing crash.
Russia’s invasion of Ukraine has worsened inflation, supply disruptions, and shortages of energy, food, raw materials, and labor, Einhorn said. The Greenlight boss cautioned the rising costs of food, gas, and rent could erode demand and spark a recession, as consumers may be forced to reduce their discretionary spending.
Einhorn argued the Fed’s sluggishness to hike interest rates and reduce bond purchases has also fueled inflation. He ridiculed the amount of concern on Wall Street about whether the next rate hike will be 0.25 percentage points or 0.5, when rates are still near zero.
“This feels like trying to figure out whether it’s best to clear a foot of snow from your driveway with a soup ladle vs. an ice-cream scooper,” he wrote in his letter.
The hedge fund manager warned the US government’s efforts to address high energy prices could drive them even higher. Granting gas-tax holidays and releasing strategic oil reserves might boost demand, he noted.
Meanwhile, attacking fossil-fuel producers for their profits, discouraging investment in energy infrastructure, and threatening new taxes could reduce supply, he said.
Finally, Einhorn waved away parallels between the current housing boom and the the mid-2000s real-estate bubble. He acknowledged concerns about rising house prices, higher interest rates, slowing sales and housing starts, growing inventories, and an increase in cancellations in recent months.
However, he noted that 15 years ago, there was a surplus of homes, mortgage rates were much higher, and homebuilders were more indebted, raising the odds of mass defaults and a market collapse. In contrast, there’s a shortage of homes, mortgage rates are lower, underwriting standards are stronger, and there’s less speculation and less leverage in the current market, he said.
“Homebuilders have not overbuilt, and are not sitting on speculative inventory to be liquidated into a hypothetical downturn,” Einhorn said.
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