Hedge Funds

Einhorn: Tech bubble brewing, shorting momentums


David Einhorn has a clear warning for technology investors: we're in a bubble.

"Now there is a clear consensus that we are witnessing our second tech bubble in 15 years," Greenlight Capital said in an investor letter Tuesday. "What is uncertain is how much further the bubble can expand, and what might pop it."

The firm said there were several indications of the over-exuberance, including the rejection of conventional valuation methods; short sellers forced to cover their positions because of losses; and "huge" first-day stock appreciations after their initial public offerings.

"The current bubble is an echo of the previous tech bubble, but with fewer large capitalization stocks and much less public enthusiasm," the letter said. The firm said it was shorting a group of undisclosed "high-flying momentum stocks."

A spokesman for Greenlight declined to comment.

The firm also disclosed a number of new long positions, including retailer Conn's, Japanese regional bank Resona Holdings and solar plant company SunEdison. Shares of Conn's and SunEdison rose sharply on the news. The firm also closed four short positions: Chipotle Mexican Grill, Fortescue Metals Group, Loblaw Cos. and Michael Kors Holdings. All lost the firm money, according to the letter.

Greenlight's main fund fell 1.5 percent in the first quarter, according to the letter. The largest winner was a long bet on Micron Technology and Green Mountain Coffee Roasters, a short, was the most significant loser.

The firm's largest long positions at the end of March were Alpha Bank, Apple, gold, Marvell Technology and Micron.

Separate from its stock holdings, Greenlight discussed its trading costs because of the high-frequency trading concerns raised in the new book, "Flash Boys."

The firm said the abuses described in the Michael Lewis book "don't significantly impact us" but said it supports new alternative trading platform IEX. Greenlight said it holds a small stake in the exchange, which has styled itself as a safer place to trade for investors worried about HFT front running.