WHEN: Today, Tuesday, October 21st
WHERE: CNBC's "Fast Money Halftime Report"
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Greenlight Capital Co-Founder and President David Einhorn today on CNBC's "Fast Money Halftime Report" (M-F, 12PM-1PM ET). Following are links to the interview on CNBC.com: http://video.cnbc.com/gallery/?video=3000322168 and http://video.cnbc.com/gallery/?video=3000321900.
All references must be sourced to CNBC.
SCOTT WAPNER: LET'S GET RIGHT TO IT. LET'S TALK ABOUT THE MARKET BROADLY BECAUSE BOY THINGS FEEL SO MUCH DIFFERENT IN THE SPAN OF NOT EVEN A WEEK. HOW DO YOU FEEL BASED ON WHERE WE WERE LAST WEEK, WHERE WE ARE TODAY AND WHERE YOU THINK WE'RE GOING.
DAVID EINHORN: I'M NOT REALLY GOOD AT PREDICTING THE MARKET IN A VERY NEAR TERM KIND OF BASIS. SO WHAT IT DOES FROM DAY TO DAY IS NOT WITHIN MY COMPETENCY TO EVEN HAZARD A GUESS AT. BUT WHAT I WOULD SAY IS THE LAST FEW WEEKS HAVE BEEN A LITTLE BIT CHOPPIER AND THERE HAVE BEEN SOME OPPORTUNITIES THAT HAVE BEEN PRESENTED BY SOME SELLING THAT'S GONE ON. THERE HAVE BEEN PEOPLE WHO'VE BEEN CAUGHT UP IN PARTICULAR POSITIONS AND CAUSED THEM TO SELL MAYBE SOME OTHER POSITIONS MAYBE. AND WE'VE BEEN FEELING FORTUNATE BECAUSE IT WAS VERY HARD A FEW MONTHS AGOTO FIND OPPORTUNITIES AND IN THE LAST COUPLE WEEKS WE'VE BEEN ABLE TO PICK UP A BUNCH OF THINGS WE ARE PRETTY EXCITED ABOUT.
WAPNER: SO YOU WERE SORT OF WAITING IN THE WINGS, LET THE MARKET FIGURE ITSELF OUT AND WAITING TO POUNCE WITH A LIST.
EINHORN: WELL WE'VE BEEN KIND OF FRUSTRATED BECAUSE WE PROBABLY HAVEN'T BEEN AS LONG AS OTHER PEOPLE AND THE MARKET AS MOSTLY GONE UP. SO WE'VE BEEN WAITING FOR OPPORTUNITIES TO BUY THINGS. AND THINGS THAT WE LIKE AND LAST WEEK AND THE WEEK BEFORE WERE REALLY THE FIRST TIME IN REALLY QUITE SOME TIME WE SAW THINGS WE ACTUALLY LIKED COMING DOWN IN VALUE TO THE POINT WE WANTED TO BUY.
WAPNER: YOU KNOW IT WAS INTERESTING THE BIG NEWS IN THE LAST WEEK OR SO WAS THAT YOU OPENED YOUR FUND TO NEW MONEY FOR THE FIRST TIME IN A COUPLE OF YEARS. I KNOW YOU ARE OBVIOUSLY LIMITED AS TO WHAT YOU CAN SAY REGARDING THAT BECAUSE OF THE REGULATORY ISSUES AND THE SEC AND THE LIKE. BUT WHAT DOES THAT SAY OF HOW YOU FEEL ABOUT WHAT KIND OF OPPORTUNITIES EXIST IN THE MARKET THAT MAYBE DIDN'T 6 TO 12 OR MAYBE EVEN MANY MORE MONTHS AGO?
EINHORN: I THINK I SHOULD JUST STICK TO WHAT I SAID ABOUT FINDING THE OPPORTUNITIES. I THINK THE LAWYERS HAVE TOLD ME I'M REALLY NOT SUPPOSED TO DISCUSS THE FUND OPENING.
WAPNER: ITHINK IT'S CLEAR THAT YOU DO FOR THE FIRST TIME IN A WHILE SEE SOME OPPORTUNITIES TO BE HAD.
EINHORN: IT'S ACTUALLY MORE FUN. COMING IN AND FINDING THINGS TO BUY IS REALLY REALLY FUN. AND LAST COUPLE WEEKS HAVE BEEN MORE FUN THAN SOME EARLIER PARTS OF THE YEAR.
WAPNER: SO WHEREAS SOME INVESTORS WHO WERE MOM AND POP INVESTORS PERHAPS WATCHING THAT MARKETS OVER THE LAST WEEK MAYBE NEED SOMEONE TO HOLD THEIR HAND THROUGH SOME OF THAT TURMOIL YOU ARE LOOKING AT THE VOLATILITY AS WELCOME RETURN IN SOME RESPECTS.
EINHORN: WELL PARTICULARLY WHEN STUFF COMES FOR SALE IN THINGS WE DON'T OWN AS MUCH OF AS WE WANT TO OWN OR WE DON'T OWN ANY OF AND WE'VE BEEN WANTING TO OWN FOR A WHILE. AND WE WERE ABLE TO FIND REALLY A GOOD NUMBER OF NAMES OVER THE LAST COUPLE WEEKS TO DO THAT.
WAPNER: WHAT'S INTERESTING IS THAT PEOPLE MAY REMEMBER WHEN YOU CALLED OUT THE FED IN SOME RESPECTS A WHILE AGO FOR WHAT YOU SAID WAS THEIR JELLY DOUGHNUT POLICY. AND WE WERE JOKING EARLIER AND YOU SAID THERE ARE JELLY DOUGHNUTS ALL OVER THE WORLD NOW.
EINHORN: YES. LOOK I THINK THE MONETARY AUTHORITIES ARE STILL RUNNING ZERO RATE INTEREST. I THINK THAT IS SOMETHING THAT IS PROBABLY LIKELY TO CONTINUE FOR A LONG TIME. AND I THINK THAT THEY ARE MISSING THE BOAT. I THINK THE ZERO RATES ACTUALLY SLOW DOWN THE ECONOMY BECAUSE THERE IS A DIMINISHING RETURN TO IT. AND SAVERS ARE BEING HARMED. IF SAVERS HAD SOME MORE INTEREST INCOME, THEY WOULD SPEND THAT MONEY AND WE WOULD HAVE A FASTER ECONOMIC RECOVERY.
WAPNER: DO YOU THINK THE FED IS BEHIND THE CURVE?
EINHORN: NOT IN TERMS OF INFLATION. I THINK THEY ARE BEHIND THE CURVE IN TERMS OF HELPING THE ECONOMY. TOO MUCH OF A GOOD THING. THEY'RE ACTUALL I THINK SLOWING DOWN THE ECONOMY EVEN THOUGH THEY DON'T REALIZE THEY ARE DOING THAT.
WAPNER: DO YOU WORRY ABOUT THE EXIT WHENEVER THAT MAY COME? IF YOU LISTEN TO SOME OF THE COMENTARY OVER THE LAST SEVERAL DAYS IT SEEMS TO BE GET PUSHED FURTHER AND FURTHER AND FURTHER.
EINHORN: I DON'T REALLY CONCERN MYSELF THAT MUCH WITH THE EXIT. BECAUSE FIRST OF ALL IF THEY DID RAISE RATES I THINK IT MIGHT BE BAD FOR WALL STREET BUT I THINK IT WOULD BE VERY GOOD FOR THE REAL ECONOMY AND EVERY DAY NORMAL PEOPLE OUT IN THE WORLD. AND ULTIMATELY YOU WOULD HAVE FASTER GDP THAT WOULD COME FROM THAT. SO YEAH THERE MIGHT BE A LITTLE HICCUP IN THE MARKET BUT I THINK THAT WOULD BE A GOOD THING TO HAVE HAPPEN.
WAPNER: AND YOU GOT ATTENTION LAST APRIL WHEN IN AN INVESTOR LETTER YOU WROTE ABOUT WHAT YOU WERE SEEING WITHIN SOME OF THESE HIGH GROWTH MOMENTUM NAMES. WHEN YOU SAID WE WERE WITNESSING THE SECOND TECH BUBBLE IN THE PAST 15 YEARS, WHO KNOWS HOW LONG IT IS GOING TO GO. WHO KNOWS WHAT MIGHT POP IT. WHERE ARE YOU NOW ON THAT KIND OF A THOUGHT?
EINHORN: THE FIRST THING I WANT TO CLARIFY IT A LITTLE BIT. WE SAID IT CLEARLY IN OUR LETTER. BUT THE WAY IT'S BEEN TAKEN OUT INTO THE MEDIA WHICH ISN'T THE MEDIA'S FAULT THERE'S JUST ONE SENTENCE, TECH BUBBLE. IT'S NOT REALLY THE CONTEXT OF THE TWO PARAGRAPHS AROUND IT. THE TWO PARAGRAPHS WERE BASICALLY SAYING THERE ARE A SELECT GROUP OF COMPANIES MOSTLY WITHIN TECHNOLOGY THAT ARE HAVING EXACTLY THAT PHENOMENON. PEOPLE SOMETIMES SAW THE COVERAGE OF THAT AND SAY MICRON A BUBBLE, IS APPLE A BUBBLE. WE'RE NOT SAYING THAT AT ALL. WE ARE LONG THOSE THINGS. BUT THERE ARE MAYBE 25, 50, 75 STOCKS IN THE MARKET WHICH I DO THINK HAVE COMPLETELY DISCONNECTED FROM FUNDAMENTAL VALUES.
WAPNER: STILL.
EINHORN: STILL IN THE SAME WAY THEY DID IN 1999 AND 2000. IT'S A SMALLER SCALE THING. IT IS AFFECTING A SMALLER AMOUNT OF THE MARKET AND FRANKLY SINCE THE SPRING THOSE THINGS HAVE MOSTLY STOPPED GOING UP. IT'S NOT THAT THE BUBBLE CONTINUED TO INFLATE. AND WE'RE ACTUALLY BEGINNING TO DO WELL ON SOME OF THOSE NEGATIVE BETS.
WAPNER: ATHENA HEALTH WAS WHEN THAT IS CERTAINLY UP. IT GOT A LOT OF COVERAGE WHEN YOU LAID OUT YOUR CASE WITH A VERY CLEVER PRESENTATION I MIGHT ADD AT THE IRA SOHN CONFERENCE. STOCK IS DOWN ABOUT 8% OR SO SINCE THAT DAY. YOU ARE STILL SHORT.
EINHORN: YEAH NO I THINK THE ATHENA THESIS IS WORKING ITSELF OUT. IT'S JUST ONE OUT OF THE BUBBLE BUT IT'S A GOOD EXAMPLE OF WHAT WE ARE TALKING ABOUT. THIS IS A COMPANY BASICALLY A BUSINESS PROCESSING SERVICE COMPANY. IT IS A NICE BUSINESS. GROWS AT THE REASONABLE RATE. IT SHOULD GET A REASONABLE VALUATION AND YET IT TRADES ABOUT 100 TIMES EARNINGS AND THAT IS IF YOU EXCLUDE STOCK COMPENSATION. I THINK STOCK COMPENSATION IS ACTUALLY AN EXPENSE. IF YOU DON'T PLAY THE EMPLOYEES IN STOCK OR SOME OTHER WAY THEY WON'T COME TO WORK. SO WHEN YOU LOOK AT THING AND SAY GEEZ THEY'RE REALLY EARNING NOTHING COUNTING ALL THE EXPENSES IT'S A VERY HIGH VALUE FOR A NICE BUT NOT SUPER SUPER NICE BUSINESS. AND WHEN THE YOU LOOK AT THE BIG STORY, THE SOFTWARE, IT IS A SERVICE COMPANY. AND YOU KNOW THEY ARE COMPETING AGAINST EPIC AND ALL THESE DINOSAURS. THE REALLY FUNNY THINGS IS, YOU KNOW, THE COMPANY BASIS SAYS PEOPLE WANT TO HAVE HEALTH RECORDS ON THEIR MOBILE DEVICES AND THAT'S WHY YOU DON'T WANT EPICS SYSTEMS WHAT'S HAPPENED SINCE THEN IS APPLE CAME OUT AND THEY HAVE THEIR HEALTH KIT AND THE FIRST STRATEGIC PARTNER ISN'T ATHENA, IT'S EPIC. NOW EVENTUALLY ATHENA MIGHT MAKE A CATCH UP APPLICATION AND TRY TO GET INTO THAT TOO BUT THE WHOLE PREMISE THAT THIS IS SOME KIND OF A DIFFERENT TYPE OF COMPANY REALLY HAS TO COME INTO QUESTION.
WAPNER: AND YOU STILL BELIEVE THERE IS CONSIDERABLE DOWNSIDE. YOUR THESIS I THINK WHEN YOU LAID IT OUT SAID THE STOCK COULD LOSE 80% OF ITS VALUE.
EINHORN: SURE BECAUSE THE COMPANY DOESN'T EARN ANY MONEY. AND WHEN YOU HAVE THAT ACTUALLY DOESN'T EARN ANY MONEY AND IT IS GROWING AT A REASONABLE RATE, THERE REALLY IS A LOT OF DOWNSIDE. LAST WEEK THEY ANNOUNCED EARNINGS AND THEY CAME SPOT ON IN LINE. BUT IT WAS A LITTLE INTERESTING BECAUSE NUMBER ONE THEY WERE HAVING TROUBLE FINDING NEW CUSTOMERS. THEY FOUND A COUPLE REALLY BIG CUSTOMERS THE PRIOR YEAR. BUT THOSE SEEM TO HAVE PASSED WHICH MAKES SENSE BECAUSE THE GOVERNMENT SUBSIDIES FOR SIGNING UP THESE CUSTOMERS EXPIRED ON SEPTEMBER 30th. AND THE OTHER THING IS THE QUARTER CAME EXACTLY IN LINE. AND WHEN YOU OPENED UP THE TEN Q, IT TURNED OUT THAT THEY HAD AN ACCOUNTING CHANGE AND THEY ACCELERATED SOME OF THEIR REVENUE. THEY DON'T SAY HOW MUCH THEY ACCELERATED SO IT'S HARD TO KNOW WHETHER IT IS MATERIAL OR NOT BECAUSE THERE IS JUST NO DISCLOSURE FOR IT. BUT THAT IS A SIGN OF A COMPANY THAT IS REALLY KIND OF PUSHING ON THE EDGE TO KEEP EVERYBODY HAPPY AND INVOLVED IN THEIR STOCK.
WAPNER: DO YOU EVER HAVE A CONVERSATION WITH JONATHAN BUSH? DID YOU GUYS EVER CATCH UP WITH EACH OTHER?
EINHORN: WE SPOKE A LITTLE WHILE RIGHT AFTER THE IRA SOHN CONFERENCE. AND I'M HOPING TO GET TO MEET HIM SOME TIME.
WAPNER: ALRIGHT LET'S TALK ABOUT APPLE. AND ONE OF THE REASONS WHY THE STOCK MARKET IS HAVING A POSITIVE DAY IS THE REACTION IN IN PART TO APPLE. THE NUMBERS WERE GREAT. YOU ARE STILL LONG YOU SAID THAT A MOMENT AGO. HOW DO YOU FEEL ABOUT WHERE THE COMPANY IS NOW? HOW DO YOU FEEL WHAT THEY ARE DOING WITH THEIR CAPITAL AMID YET AGAIN CARL ICAHN PUBLICLY COMING OUT AND SAYING THEY SHOULD BUY BACK MORE STOCK.
EINHORN: I THINK APPLE IS RIGHT NOW WORKING PRETTY MUCH AN ALL THE CYLINDERS. THERE ARE PROBABLY MORE GOOD THINGS THAT THEY WILL GROW AND INNOVATE IN THE FUTURE. BUT RIGHT NOW PRETTY MUCH EVERYTHING THEY ARE DOING IS GOING WELL. THE TOP LINE IS GROWING, MARGINS ARE EXPANDING THE CAPITAL ALLOCATION, THE BUY BACK HAS MADE A DIFFERENCE. I THINK IT ADDED ABOUT 7 POINTS TO THE EARNINGS PER SHARE GROWTH IN THE QUARTER THEY ANNOUNCED. AND IT SEEMS LIKELY THEY ARE GOING CONTINUE THESE THINGS AND OUR CORE THESIS WHICH IS THAT APPLE IS A GROWING COMPANY BECAUSE THEY HAVE A BASE OF CUSTOMERS THAT WHEN THEY GET ANOTHER NEW PHONE IT IS VERY LIKELY TO BE ANOTHER iPHONE. AND WHEN THEY WANT TO HAVE ANOTHER WIRELESS DEVICE IT IS VERY LIKELY TO BE iPAD OR RELATED PRODUCT. SO YOU HAVE A CUSTOMER BASE THAT SUSTAINS ITSELF AND REPEATS ITSELF AND THEN YOU ADD ON TOP NEW CUSTOMERS THEY WIN AND MAKES IT A GROWTH COMPANY. AND I THINK RIGHT NOW I THINK ESTIMATES FOR NEXT YEAR ARE CREEPING UP TOWARDS $8 A SHARE. THERE'S I THINK $20 PER SHARE OF NET CASH. SO IF YOU NET OUT THE CASH YOU ARE AT ABOUT 10 TIMES NEXT YEARS EARNINGS AND I THINK IS REMARKABLE FOR A FRANCHISE LIKE THIS.
WAPNER: SHOULD THEY BUY BACK MUCH MORE TO THE LEVEL ICAHN WANTS?
EINHORN: I DON'T WANT TO QUIBBLE IN IT. THEY ARE BUYING BACK A LOT OF STOCK AND THEY'RE RETURNING CAPITAL IN A NICE WAY. IF THEY DID A LITTLE BIT MORE THAT WOULD BE FINE, IF THEY ARE DOING WHAT THEY ARE DOING NOW THAT WOULD BE FINE. THE IMPORTANT THING IS THEY ARE MOVING IN THE RIGHT DIRECTION.
WAPNER: LET ME ASK YOU ABOUT MICRON. IT WAS THE NEWS YOU MADE A YEAR AGO AT THIS CONFERENCE AND WE SPOKE ABOUT IT ON THIS VERY PROGRAM. THE STOCK'S OBVIOUSLY DONE WELL. MICROCHIP A WEEK AGO SEEMED TO SCARE THE HECK OUT OF EVERYBODY IN WHATEVER KIND OF CHIP BUSINESS YOU WERE IN YOU FELT THE PAIN FROM MICROCHIP. ANY IMPACT ON HOW YOU FEEL ABOUT MICRON TODAY?
EINHORN: WELL NO ACTUALLY IT DIDN'T. ANDS THAT THE KIND OF SHORT-TERM MOVEMENT THAT CREATES OPPORTUNITY, IF YOU WOULD. WE HAD HAD AN OPPORTUNITY TO TRIM SOME OF OUR MICRON A LITTLE BIT HIGHER. WE WERE ABLE TO BUY SOME BACK LAST WEEK. THIS IS JUST THE NOISE THAT WE DO. THE CORE OF THE MICRON THESIS IS VERY MUCH IN TACT. AS BEST I CAN TELL.
WAPNER: ONE OF THE QUESTIONS WAS WHETHER D-RAM PRICES WERE GOING TO COME DOWN WHETHER THERE WOULD BE TOO MUCH SUPPLY COMING ON THE MARKET. THERE WAS SOME ANALYST NOTES THAT THEN HAD TO BE RETRACTED. AND WE, YOU KNOW, WE KNOW ABOUT THOSE VERY WELL. SOME OF THE ISSUES OF CONCERN NEVER REALLY MATERIALIZED.
EINHORN: WHAT'S INTERESTING IS PART OF OUR THESIS IS THERE ARE VERY LONG LEAD TIMES ON ADDING CAPACITY. SO FOR EXAMPLE THERE'S BEEN A LOT OF EXCITEMENT SAMSUNG MIGHT ADD A NEW BIG FAB IN D RAM. LET'S SAY THAT HAPPENS EXACTLY THE WAY THEY THINK. YOU ARE LOOKING AT MAYBE 9% MORE CAPACITY AND FOR THAT TO COME ON AT THE END OF 2017 OR 18. A LONG PLANNING CYCLE IN AND IT'S NOT THAT MUCH OF A CHANGE BUT CREATES A LOT OF HEADLINES AND PEOPLE WITH A SHORT-TERM VIEW OF THE STOCK CAN TRADE AROUND THAT.
WAPNER: STICK AROUND AND WE'LL TAKE A QUICK BREAK AND COME BACK AND TALK ABOUT YOUR NEW BEST IDEAS THE ONES YOU TALKED ABOUT AT THIS VERY CONFERENCE?
EINHORN: TERRIFIC.
WAPNER: ALRIGHT, WELCOME BACK. WE ARE HERE AGAIN WITH GREENLIGHT CAPITAL'S CO-FOUNDER AND PRESIDENT DAVID EINHORN. LET'S TALK ABOUT SUNEDISON AND TERRAFORM. THOSE WERE TWO STOCKS THAT YOU LAID OUT YESTERDAY. YOU HAVE BEEN IN THOSE STOCKS FOR A WHILE. IT'S NOT LIKE YOU JUST INVESTED IN THESE THINGS.
EINHORN: WELL, REALLY SUNEDISON. SUNEDISON CONTROLS TERRA FORM, AND SO THAT IS WHAT BROUGHT IT INTO THE PRESENTATION. OUR INVESTMENT, THOUGH, IS DIRECTLY JUST IN SUNEDISON.
WAPNER: DO YOU BELIEVE THAT STOCK CAN GO TO $32 A SHARE?
EINHORN: YES. THAT IS WHAT WE ADDED UP THE VALUE TO BE.
WAPNER: WHY DO YOU MAKE YOUR CASE FOR THAT STOCK NOW?
EINHORN: IT'S A VERY COMPLICATED FINANCIAL SITUATION, BUT IT IS A VERY SIMPLE STORY. AND I KIND OF LIKE THE WAY THAT THAT GOES TOGETHER BECAUSE THE COMPLICATED FINANCIAL SITUATION MEANS THAT I THINK A LOT OF PEOPLE MISUNDERSTAND THE COMPANY. THEY LOOK AT THE BALANCE SHEET AND THERE ARE LOTS OF ASSETS AND THERE IS LOTS OF DEBT. AND THEY LOOK AT THE INCOME STATEMENT AND THERE IS NOT A LOT OF EARNINGS. SO YOU HAVE TO KIND OF LOOK AT WHAT'S GOING ON HERE. AND THE REASON FOR THAT IS THEY OWN CONTROLLING INTERESTS IN A WHOLE BUNCH OF DIFFERENT COMPANIES WHICH ARE ALL CONSOLIDATED INTO THE FINANCIAL STATEMENTS. SO WHAT I DID YESTERDAY WAS I PULLED THE PIECES OUT AND I SAID LOOK, THEY OWN 60 SOMETHING PERCENT OF TERRAFORM. WHAT IS THAT WORTH? AND THEY OWN A JOINT VENTURE WITH SAMSUNG AND WHAT IS THAT WORTH? AND THEIR SEMI-CONDUCTOR PIECE. WHAT IS THAT WORTH? AND THEIR CORE DEVELOPMENT BUSINESS. AND YOU ADDED THESE THINGS UP AND IT'S PRETTY EASY TO GET TO $32 A SHARE. THE MOST VALUABLE IS THE DEVELOPMENT BUSINESS WHERE THEY GO INTO AREAS MOSTLY PLACES LIKE HOME DEPOTS AND AIRPORTS AND THEY PUT IN SOLAR. THEY INSTALL THAT. THAT IS GROWING EXTREMELY RAPIDLY. WE THINK THAT BUSINESS BY ITSELF WILL EARN A DOLLAR A SHARE IN 2016. SO WE THOUGHT THAT WAS WORTH ABOUT 15 OR 16. WE THOUGHT THE INVESTMENT IN TERRAFORM JUST AT MARKET IS WORTH BETWEEN 4 AND 5 DOLLARS A SHARE. PLUS, THEY GET SOMETHING CALLED AN INCENTIVE DISTRIBUTION RIGHT IN TERRAFORM, WHICH IS ALMOST LIKE A CARRIED INTEREST, IF YOU WOULD. SO THAT WHEN TERRAFORM GROWS ITS DIVIDEND COMING OUT A FEW YEARS FROM NOW, SUNEDISON WILL BEGIN TO COLLECT ESSENTIALLY ROYALTIES ON THAT BUSINESS. WE VALUED THAT AT ANOTHER $9 PER SHARE. THEN YOU THREW IN A COUPLE OF SMALL OTHER PIECES AND IT WAS EASY TO GET UP TO ABOUT 32.
WAPNER: WHAT IF ENERGY PRICES CONTINUE TO COME DOWN? CLEARLY, YOU MUST BE THINKING ABOUT THAT POSSIBILITY.
EINHORN: WELL, IT DEPENDS ON WHAT YOU MEAN BY ENERGY PRICES. BECAUSE WE ARE TALKING ABOUT ELECTRICITY PRICES, WHICH IS DIFFERENT FROM OIL PRICES. I THINK THAT SUNEDISON STOCK WAS VERY WEAK LAST WEEK BECAUSE OIL PRICES CAME DOWN. BUT OIL IS USED MOSTLY IN TRANSPORTATION. AND SOLAR IS USED MOSTLY IN ELECTRICITY. AND THEY DON'T REALLY OVERLAP. AND YOU WOULD HAVE TO GO A LOT WAY LOWER IN OIL BEFORE YOU WOULD START BURNING IT TO LIKE BOIL GAS AND TURN TURBINES AND CREATE ELECTRICITY.
WAPNER: AND YOU DON'T THINK WE GET THERE?
EINHORN: I THINK THAT IS THE – NO. IT IS NOT EVEN CLOSE. AND I THINK THAT IS ONE OF THE REASONS LIKE YOU HAD THIS OPPORTUNITY LAST WEEK TO ADD TO SUNEDISON POSITION, BECAUSE IT WAS LIKE A BABY BEING THROWN OUT WITH THE BATH WATER WITH THE OIL PRICES COMING DOWN.
WAPNER: LET ME ASK YOU ABOUT GREEK BANKS. YOU MADE A CASE, AGAIN, AND YOU HAVE BEEN IN ALPHA AND PIRAEUS FOR A WHILE, CORRECT?
EINHORN: YES.
WAPNER: YOU SAY OWN THEM. GO LONG THROUGH THE WARRANTS, CORRECT?
EINHORN: WELL THE SHARES OR THE WARRANTS. BOTH. THE WARRANTS ARE MORE LEVERED. SO YOU PUT UP A LITTLE BIT LESS MONEY AND YOU HAVE A LOT MORE UPSIDE. SO IT IS A HIGHER RISK, HIGH REWARD WAY TO MAKE THE SAME BET. BUT WE OWN BOTH SHARES AND WARRANTS IN BOTH BANKS.
WAPNER: BECAUSE I READ IT AS DESCRIBED, AS YOU KNOW, WITH THE WARRANT SIDE AT LEAST, FREE LEVERAGE WITH LIMITED DOWNSIDE. I GUESS THAT SPEAKS TO EXACTLY WHAT YOU ARE SAYING.
EINHORN: THAT IS RIGHT. WELL, YOU CAN ONLY LOSE YOUR PREMIUM. YOU CAN ONLY LOSE WHAT YOU PAY FOR THE WARRANT. SO THE ALPHA WARRANTS, I THINK, HAVE LIKE NINE SHARES PER WARRANT AND THE PIRAEUS ONES HAVE LIKE FOUR SHARES PER WARRANT. SO YOU GET A LOT OF EMBEDDED LEVERAGE IF THE SITUATION WORKS OUT.
WAPNER: WHAT DOES THAT BET IN AND OF IT ITSELF SAY ABOUT WHAT YOU THINK ABOUT GREEK BANKS, WHERE WE ARE IN EUROPE, WHICH OBVIOUSLY ISN'T GREAT.
EINHORN: WELL, I THINK WHAT'S INTERESTING ABOUT GREECE IS GREECE ALREADY HAD ITS DEFAULT. SO A LOT OF ITS PROBLEMS ARE BEHIND IT. THE DEBT HAS BEEN FORGIVEN IN SOME CASES, RESTRUCTURED IN OTHER CASES. INTEREST RATES HAVE LOWERED FOR THE DEBT. A LOT OF THE DEBT DOESN'T EVEN PAY INTEREST FOR TEN YEARS. GREECE HAS NOW A LONG RUNWAY. THEY HAVE TAKEN A LOT OF AUSTERITY. THEY ARE ACTUALLY AT PRACTICALLY A BUDGET SURPLUS. THEY ARE AT A TRADE SURPLUS. SO THE WORLD IS LOOKING AT THIS AND SAYING WELL, GREECE, LOOK WHAT HAPPENED TO GREECE BEFORE. BUT I ACTUALLY THINK THEY ARE SORT OF ON THE WAY TO RECOVERY. AND THERE ARE OTHER PLACES IN EUROPE THAT HAVE MAYBE BEEN TOO PROUD TO TAKE THEIR RESTRUCTURING THAT ARE BEING PRICED AS IF THEY ARE COMPLETELY RISK FREE AND I THINK THOSE ARE PLACES WHERE PEOPLE SHOULD BE MORE WORRIED.
WAPNER: YOU DON'T WORRY ABOUT QUALITY OF CAPITAL IN SOME OF THE GREEK BANKS? CREDIT SPREADS? WIDENING?
EINHORN: YES. THERE ARE HUGE PROVISIONS FOR LOAN LOSSES HERE AND THESE GUYS HAVE VERY HIGH TIER ONE CAPITAL RATIOS. ALPHA IS ONE OF THE BEST CAPITALIZED BANKS IN ALL OF EUROPE. AND ADDITIONALLY, THERE IS A PHENOMENA WITH THE GREEK BANKS WHERE I THINK THEY MAY BE OVER RESERVED BECAUSE THE GREEK GOVERNMENT, AS PART OF THE FINANCIAL CRISIS, TOLD THE BANKS YOU CAN'T FORECLOSE ON PEOPLE'S HOUSES. AND THE RESULT WAS I THINK A LOT OF PEOPLE WHO COULD PAY THEIR MORTGAGE STOPPED PAYING, SO YOU HAVE A LOT OF NON PERFORMING LOANS. BUT NEXT YEAR THAT LAW REVERSES. AND I THINK A LOT OF THESE SORT OF STRATEGIC DEFAULTS ARE GOING TO COME BACK INTO PERFORMING STATUS. I THINK A LOT OF THE RESERVES THAT THE GREEK BANKS HAVE WILL BE REVERSED AND EVENTUALLY THOSE WILL SHOW UP AS CAPITAL AND PROFITS AND EARNINGS. AND IF THAT THESIS PLAYS ITSELF OUT, I THINK THE BANKS SHOULD DO VERY WELL.
WAPNER: I'VE GOT A COUPLE OF GUYS BACK AT OUR STUDIO, AS I SAID, IN ENGLEWOOD CLIFFS, WHO WOULD LIKE TO ASK YOU A QUESTION. JOE TERRANOVA, WOULD YOU LIKE TO ASK DAVID EINHORN A QUESTION?
JOE TERRANOVA: YEAH, DAVID. I GUESS OVERALL THE QUESTION WOULD BE, SO MUCH WAS MADE LAST WEEK ABOUT THE DECLINE IN THE MARKETS BEING DRIVEN BY HEDGE FUNDS THEMSELVES. SCOTT I THINK I HEARD DAVID SAY HE CAN'T HEAR ME.
WAPNER: HE IS TALKING ABOUT THE DECLINE IN THE MARKET BEING DRIVEN BY HEDGE FUNDS THEMSELVES. SORT OF, YOU KNOW, ALMOST DOING BATTLE WITH ONE ANOTHER.
EINHORN: THE QUESTION IS, IS HEDGE FUNDS DRIVING THE MARKET NOW?
WAPNER: MAYBE IN SOME DEGREE. DO YOU WANT TO COMMENT ON THAT?
EINHORN: YEAH THAT COULD EASILY BE. YOU HAD A LOT OF PEOPLE WHO WERE LONG A LOT OF ENERGY. YOU HAD PEOPLE THAT WERE LONG A RISK ARB SITUATION THAT BLEW UP LAST WEEK. YOU HAD PEOPLE THAT WERE LONG THE LITIGATION RELATING TO FANNIE AND FREDDIE. THAT'S A LOT OF SORT OF CORRELATED OR NON CORRELATED EVENTS ADVERSELY EFFECTING THE SAME TYPES OF INVESTORS. AND SOMETIMES IF THEY LOSE IN ONE POSITION, THEY BEGIN TAKING RISK DOWN ELSEWHERE. AND THAT CAN CREATE OPPORTUNITIES.
WAPNER: JOSH BROWN, SPEAK UP AND ASK DAVID A QUESTION.
JOSH BROWN: HI DAVID. I'M WITH YOU ON ALL OF YOUR COMMENTS REGARDING SOLAR AND ELECTRICITY. AND I'M IN A LOT OF THE SAME TRADES, BUT YOU KNOW, THE BEARS WOULD SAY, AND I'D LOVE TO HEAR YOUR THOUGHTS ON THIS, THAT THE ACHILLES HEEL FOR SOLAR AND FOR ALL OF THESE NEW PROJECTS IS THAT A LOT OF THESE COMPANIES ARE BENEFITTING FROM ULTRACHEAP FINANCING. SO IF YOU ARE RIGHT, AND WE SHOULD SEE HIGHER RATES, DO YOU THINK THAT PUTS A CRIMP IN THE MASSIVE EXPANSION OF SOLAR ENERGY PROJECTS?
EINHORN: RIGHT. LOOK, HALF OF THE NEW ELECTRICITY BEING INSTALLED IN THE UNITED STATES THIS YEAR IS SOLAR. SOLAR IS COMPETITIVE AT THIS POINT WITH OTHER KINDS OF ELECTRICITY OPTIONS, YOU KNOW, WITHOUT SUBSIDIES. THIS IS A TECHNOLOGY THAT IS IMPROVING. BECAUSE IT SORT OF BENEFITS FROM SEMI-CONDUCTOR STYLE INNOVATION WHERE THEY ARE CONSTANTLY IMPROVING THE PRODUCTION. SO THE COSTS KEEP COMING DOWN MAKING SOLAR INCREASINGLY MORE COMPETITIVE AGAINST OTHER FORMS OF ELECTRICITY GENERATION. YEAH, IT IS TRUE THAT TO HAVE NEW PROJECTS, THE LOWER YOUR COST OF CAPITAL IS THE LOWER YOUR RATE OF RETURN THAT IS REQUIRED, THE MORE ATTRACTIVE THE PROJECTS ARE. AND SUNEDISON IS A BENEFICIARY OF THAT. ONE OF THE BENEFITS OF TERRAFORM IS IT CREATES A BUYER FOR THEM, FOR THEIR PROJECTS THAT HAS A LOW COST OF CAPITAL. AND I THINK THAT THAT'S A BENEFIT THAT ULTIMATELY FLOWS THROUGH TO SUNEDISON SHAREHOLDERS. FRANKLY, I'M NOT THAT WORRIED ABOUT INTEREST RATES GOING UP BECAUSE I JUST DON'T FEEL LIKE THEY ARE. I FEEL LIKE WE'RE KIND OF STUCK IN THIS ZERO RATE INTEREST RATE POLICY. AND IF THEY MOVE UP A QUARTER PERCENT OR A HALF A PERCENT OR ZERO, I JUST DON'T SEE HOW THAT IS GOING TO CHANGE THE BASIC ECONOMICS OF DECIDING WHETHER OR NOT YOU WANT TO PUT ELECTRICITY GENERATION IN TO EXPAND YOUR GROWTH OR TO BUILD OUT YOUR COUNTRY.
WAPNER: IT IS GREAT TO SEE YOU AGAIN.
EINHORN: THANK YOU.
WAPNER: THANKS SO MUCH FOR SPENDING SOME TIME WITH US. CONGRATULATIONS ON ANOTHER GREAT YEAR WITH WHAT YOU GUYS HAVE BUILT WITH ROBIN HOOD.
EINHORN: THANK YOU SO MUCH. THANKS FOR HAVING ME ON.
WAPNER: YEAH, YOU BET. DAVID EINHORN OF GREENLIGHT CAPITAL.
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