Bringing down inflation could pose greater challenges than investors anticipate, noted hedge fund manager David Einhorn remarked on Wednesday.
Einhorn, the founder and president of Greenlight Capital, conveyed to CNBC’s Scott Wapner his belief that the Federal Reserve is likely to execute fewer than three interest rate cuts this year, suggesting there might even be no cuts at all.
“I think inflation is reaccelerating. I think there’s a lot of indication of that,” Einhorn asserted during the Sohn Investment Conference in New York.
Einhorn’s observations followed the release of recent U.S. data that heightened concerns about persistent inflation. The core personal consumption expenditures price index, as expected, climbed 2.8% in February, surpassing the Fed’s 2% inflation target.
In a move to fortify against potential market downturns, Einhorn disclosed his increased allocation towards gold. Greenlight Capital held $74 million worth of the SPDR Gold Trust fund (GLD) by the end of the fourth quarter, according to VerityData and regulatory filings.
“We own a lot more gold than just the GLD. We own physical bars as well, so gold is a very large position for us,” Einhorn stated.
“There’s a problem with the prevalent monetary and fiscal policies of the country, and if both policies are systemically too loose, I think the deficits are ultimately a real problem. And I think that this is a way to hedge the risk of something not-so-good happening.”
Investment Value Opportunities Identified
Despite his concerns, Einhorn pointed out that opportunities are emerging in value stocks, which he believes are currently misunderstood.
One of his most profitable strategies involves investing in spinoffs, he disclosed, singling out Belgium-based chemicals and plastic products company Solvay as his top stock recommendation.
Solvay, which has plummeted more than 70% this year, spun off its specialty chemical activities into a new entity named Syensqo in December, coinciding with Einhorn’s commencement of share acquisitions.
Solvay holds a prominent position among the top five holdings for Greenlight Capital.
“When I say that the market is broken, what I’m saying is there’s not enough money that is being dedicated to investing, trying to identify undervalued companies, reward companies with new capital that have good opportunities for growth,” Einhorn explained.
He added, “and to punish companies that don’t have such good situations, because the professional industry of figuring this stuff out has largely been eradicated.”
Greenlight Capital, managed by Einhorn, oversees approximately $2 billion in assets. The fund trailed behind the S&P 500 last year, yielding a return of 22.1%, net of fees and expenses, while the broad market index surged 24.2% in 2023.
