David Einhorn Reveals Why He Thinks Stocks Are So Cheap Right Now

David Einhorn

David Einhorn’s calls are the stuff of modern day hedge fund legend (think: Lehman Brothers collapse, Green Mountain Coffee), and he’s definitely asserted himself as one of the industry’s hot shots.

So now when he talks, everyone listens.

Maybe that’s why he’s finally written an opinion piece about one of today’s hottest debates — interest rates, to raise or not to raise? The column, full of colourful Simpsons references, was published in the Huffington Post today, and is called ‘The Fed’s Jelly doughnut Policy.’

Basically, Einhorn clearly loves jelly doughnuts, but he thinks The Fed is giving us too much of a good thing by keeping rates to so low. He argues that it’s adversely effecting the middle class by giving them a false sense of wealth (in equities) and making retirement savings grow at a snail’s pace. He also argues that low rates make it easier for the rich to speculate in the market, and widen the income gap.

Here’s another negative thing Einhorn thinks low interest rates do, and explains something people have been wondering about for what seems like ages (from the piece):

I believe that stocks are depressed because there is a pervasive feeling that something awful is going to happen. What is this enormous tail-risk? It’s the intersection of reckless fiscal policy with Jelly doughnut monetary policy…

I believe that removing the tail risk that Chairman Bernanke will feed us a coma inducing dose of Jelly doughnuts would go a long way toward restoring the relationship between P/E multiples and long-term interest rates to the benefit of stocks, at the expense of bonds. If the Fed were to stop trying so hard to prop-up the stock market, the reduction in tail risk would probably fuel the market going up on its own.

I think we’ve reached the point where even Homer can see that the last thing he needs is another Jelly doughnut, but the Fed Chairman is oblivious.

We can all say “D’oh!”

Fair enough, Einhorn. And if you come to Business Insider and let us sit you in front of a camera for an interview about all this, we’ll get you a dozen jelly doughnuts for your trouble.

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