Friday, January 30, 2009

Einhorn Buying Gold

An article in Bloomberg reports that Einhorn is buying gold these days.

Since Einhorn was 10 years old, his grandfather has warned him that investing in bullion and gold-mining stocks was the only “sensible” thing to do given the threat of inflation and the risks of so-called fiat currencies, New York-based Greenlight said in a Jan. 20 letter to clients. The firm had never before considered buying bullion or mining-company shares.

“To everyone’s dismay, we believe some of Grandpa Ben’s predictions are playing out,” Greenlight said in the letter, a copy of which was obtained by Bloomberg News. “The size of the Fed’s balance sheet is exploding, and the currency is being debased.”

Greenlight is turning to the centuries-old currency to mitigate the effects of the economic collapse and government efforts to end it. Bullion gained for the eighth straight year in 2008 as governments in Europe and the U.S. rescued banks from collapse.

Greenlight said in the letter that in addition to buying gold, it has added call options on gold and the Market Vectors Gold Miners exchange-traded fund to its other investments. Call options are the right to buy a security or commodity at a set price, within a set period of time. The owner of the call profits when the security rises above the set price.

Einhorn himself added, in the article, the following:
The Federal Reserve’s policy of taking unorthodox steps to boost the supply of credit is essentially “printing money,” Greenlight said. The government’s “aggressive” fiscal policy also signals all efforts will be made to stem the effects of the current economic problems, the fund said.


  1. John Mauldin has made the point that you have to balance the Fed's money-printing actions with the decline in the velocity of money and the huge deflationary effects of deleveraging.

  2. Would love to hear Einhorn's response to that, because it's a great point. My guess is that Einhorn would probably agree with Mauldin's statement--but reply that this position is one of many, and that he expects to continue to make money as markets deleverage.