David Einhorn: We Believe It Is The End Of A Commodity Super Cycle

David Einhorn: We Believe It Is The End Of A Commodity Super Cycle

David Einhorn’s comments from the Greenlight Capital RE earnings call for the fourth quarter ended December 31, 2015. Below is a transcript of the call.

David Einhorn, Founder And President Of Greenlight Capital

Takes part in Good morning, everyone that relate portfolio lost 4% in the fourth quarter reading the full-year return in 2015 to -20.2%.

The short portfolio was responsible for most of the loss in the quarter.

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The environment continued to be unfavorable for our value style with sentiment seems to shifted so far this year.

In the fourth quarter we initiated positions in Macy’s, Mylan, in a European utility Company, Jan all of which trade at single-digit PEs with of expected earnings are notable exits include our long positions in Micron Inc.


Bank of New York and Applied Materials and we covered our short position in AR and holdings.

We lost 17.2% our long portfolio last year we had three long positions that caused over three percentage CONSOL Energy, Micron Technology and SunEdison which detracted a combined 14.9%.

It’s rare for us to have these three losers of this magnitude in a single year in it’s only our second year along with 2008 when this has been the case.

We also had a lack of winter to offset our losers and header worst year by farm in this regard.

All of our winning positions in 2015 added up to a 19% gross investment return.

The second worst year in our history was 31% and our 20 year average is 51%.

Many of these docs in our portfolio had relatively solid one middle performance last year but went unreported.

We hope this trend reverses in 2016. We believe the strong balance sheet and more multiples of cash flow and earnings are ultimately appreciated by market participants over time.

We maintain conservative positioning through the course of the year is averaging 21% that long exposure as the year progressed we saw that the environment is becoming increasingly unfavorable for our style we reduced our gross exposure by 30 by 35 points.

We maintained a significant shortage exposure and despite the be in short several momentum driven stocks the short book was up 0.4% for the year.

We entered 2016 with the 16% net exposure the lowest we’ve entered in the year the Greenlight Re investment portfolio returned 1.2% in January while the S&P 500 fell about 5%. Over short seven helpful in return 7% in January.

We started to see some reversion in the market in January and February as he markets have sold off we become a little more long as our shorts have fallen in value and we found a few things to buy.

In the loan portfolio we continue to on well-positioned cash-rich Company’s including Apple, MGM for taking advantage of low stock prices to buyback shares.

In both cases the slowdown in China have contributed to stock price declines so far this year and the shares of both Company’s trade at single-digit multiples.

AerCap holdings is our biggest loser in January it’s an aircraft leasing Company that is exceptionally well-managed and is growing earnings.

We think the stock as been unduly punished by concerns over slowdown in emerging markets in China in particular in the stock is now trading at a mid-single-digit multiple.

We are excited about the prospects for Consol energy as we expected price of natural gas to recover significantly over the next year as natural gas producers have dramatically slow drilling.

Consoles one of the lowest cost producers of natural gas in stock price should have leverage to hire future gas prices.

Currently market participants seem to be concerned about a Global slowdown in are losing faith and central bankers the US economy is challenged due to a strong dollar and beaten-down energy sector policymakers ever little room to maneuver in the event of a real downturn on the bright side that US consumer may come to the rescue as we are nearing up wages are slowly rising and others an effective tax cut in the form of low energy prices.

It remains to be seen whether the US consumer will provide support for corporate earnings and if not at least we hope they buy iPhones at GM cars and Michael Kors begs particularly at Macy’s.

We remain short of bubble basket of momentum stocks did seem is connected from traditional valuation metrics which is our biggest winner so far this year.

We are short oil fracturers stock prices are starting to reflect their challenge business models we’re short heavy equipment manufacturer we’re assuming the current commodity environment is an ordinary cyclical downturn we believe it is the end of a commodity super cycle in this will exert a long period of earnings headwinds for these Company’s.

We continue to be conservatively positioned at 26% net long as of January 31 we’re holding a bit of cash and have the flexibility to be opportunistic as equity and distressed credit opportunities emerge I just came from a two-day Board meeting in Canaan and was pleased with the and run progress in 2015 and the new business written to date for 2016. While we experienced a difficult 2015 on a number of levels we are encouraged by our recent performance and our current portfolio.


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