Elite investor David Einhorn expects an economic slump and sticky inflation - and says the risk of a global financial meltdown is growing
Mike Segar/Reuters
- David Einhorn said the US economy is slowing down and inflation is here to stay.
- The Greenlight Capital boss accused the Fed and US government of inflating a huge bubble.
- Einhorn pointed to red flags in global bond markets and warned a disaster may be coming.
US investors face a cooling economy, stubborn inflation, and a growing risk of a global financial meltdown, David Einhorn has warned.
"We're in a period of economic slowdown or deterioration, and that's when things that were overvalued tend to get derated," the Greenlight Capital founder said in a Bloomberg interview on Tuesday.
Einhorn noted that years of near-zero interest rates, a growing money supply, and carefree government spending drove up asset prices and debt volumes to dangerous heights.
"We blew up a great big bubble in a lot of things," he said.
The easy-money era helped drive inflation to a 40-year high this year, and it's likely to remain higher for years to come, Einhorn said. He added that both monetary and fiscal policy were responsible for the raging price increases, and called on both the Federal Reserve and the US government to address the issue.
Einhorn also bemoaned a widespread decline in value investing, which centers on identifying undervalued companies based on their fundamentals. He suggested that the discipline's fading popularity has made it easier for asset bubbles to form and persist.
"Nobody knows what anything is worth, so there's an enormous number of companies that are dramatically misvalued in ways that we haven't seen before," he said.
Indeed, Einhorn cautioned investors against assuming a stock is cheap simply because it's plunged 60% or 70% in price this year, as it could still be hugely overvalued.
The combination of heady valuations, stubborn inflation, rising interest rates, and large amounts of debt could reveal cracks in the global financial system, Einhorn said.
"The systemic risks have built up in the government bond markets all around the world," he said, likely nodding to Britain's ongoing gilt fiasco. "When you have a down cycle is when these things tend to metastasize."