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At the end of a lackluster second quarter, David Einhorn's $9 billion stock fund Greenlight Capital saw major gains from its positions in gold and gold stocks, thanks to investor favor for the yellow metal in the turbulent aftermath of Britain's vote to exit the European Union.
Still, in a July 26 letter to his own investors, the hedge-fund manager played down the impact of the so-called Brexit, saying the United Kingdom is simply too small for its transition to have substantial financial implications.
"Sure, there will be a handful of companies that suffer idiosyncratic issues, but the U.K. economy is simply not big enough for even a devalued British pound to have a large direct impact on global trade," Einhorn wrote.
Using a confectionery analogy, he noted that Brexit may, however, have implications for central-bank policy.
The "mere pretense of an event is likely sufficient to entice the global monetary authorities into serving up a fresh course of Jelly Donuts," wrote Einhorn. "The Federal Reserve put itself on hold ahead of the vote, so it shouldn't be a surprise if the 'leave' vote takes tightening off the table for some time. Other central banks have made various promises to double down on their failing policies as they deem appropriate. Government bond prices have soared," he added, "as the market sense that a global monetization of large amounts or even all government debt may be in our future."
During the second quarter, in which Greenlight's main fund fell 2.6 percent net of fees, leaving it up just 0.4 percent year to date, the hedge fund exited its position in Macy's at $32.08, leaving it with a loss on the investment. He said Macy's reduction of its full-year 2016 guidance "invalidated our thesis that 2016 earnings would benefit from easy comparisons later in the year."
The move, however, appears to have been premature, given that the department store's shares have since risen to the $37 range as of Tuesday.
At the same time, Greenlight continues to be bullish on the chemical company Chemours, saying its litigation risks have been overstated and that the shares will perform well once investors "refocus on the earnings power of the business," as Einhorn put it.
Greenlight bought Chemours stock beginning late in 2015, believing its shares were at or near a bottom (they were close to right; the bottom arrived in the first quarter of this year), and Chemours is up hugely year to date.
Einhorn pointed out that while Greenlight benefited from both its gold exposure and a position in Consol Energy during the second quarter, it was hurt in large part by its short positions, including an oil-fracking short he would not name (other than to say it was not Pioneer Natural Resources, which he has dubbed "the Mother-Fracker") and a short position in Amazon.