Einhorn Shorting Moody’s, Buying Gold
Hedge Fund manager David Einhorn said he remains very bearish on the prospects for ratings agency Moody’s.
Speaking at the Ira Sohn Investment Research conference in New York Wednesday, the boss of Greenlight Capital said the ratings agencies short-term approach to its credit assessments will cause problems for Moody’s and its rivals over time.
“Moody’s continues to use short-term outlook of only 12 to18 months to analyze data to assess a countries ability to finance themselves” said Einhorn, who manages $6.5 billion.
Shares of Moody’s fell in after-hours trading.
“Moody’s makes five year medium term qualitative assessments for each country but does not appear to do any long term quantitative or critical work," Einhorn said.
Einhorn said this will come back to haunt Moody’s and McGraw-Hill’s Standard & Poor’s and that he believes Europe could be a major problem for them, given the problems that have emerged in Greece and other weaker economies within the euro zone.
Simon Goodfellow, the head of European equity strategy research at ING Wholesale Banking, said ratings agencies have a regulatory privilege in the US and this means they have to be taken seriously.
“I would not take their view over actual CDS prices which are a better indicator," Goodfellow said.
“Many fund managers are restricted by what they can invest in, like Triple-A debt," he said. "The ratings agencies or a similar form of rating debt is here to stay."
Warren Buffett’s testimony on the ratings agencies on Wednesday June 2 will be closely watched by the market.
Europe Just the Prequel
The man who began questioning the health of Lehman Brothers four months before its collapse also says problems in the euro zone could just be the prequel problems in the US.
“The Greek crisis might be the first sign the sovereign debt bubble is popping,” Einhorn said. “The US still has many inadequately capitalized banks and its is difficult to get an accurate gauge of their health."
Given these fears Einhorn remains long on gold and gold firms.
“We tend to think of gold as a currency," he said. "I think there is going to be a lot of inflation."