The president of Greenlight Capital and founder of Einhorn Collective, big-time investor David Einhorn has some words for the Federal Reserve. The billionaire has a history of investing both long and short which, mixed with his professional poker career, has given him credibility. With Einhorn’s latest comments on the Fed, investors may be incentivized to listen.
Here’s what Einhorn says about the Fed and its impact on inflation (if there’s any impact at all).
David Einhorn doubts the Fed’s influence on inflation.
Einhorn spoke at the 2022 Sohn Investment Conference, an event that raises money for medical research including equipment and childhood illness programs. Einhorn said that the Fed has limited capacity to quell inflation.
“The Fed is bluffing,” Einhorn said. He also said, “It simply can’t do much more because it must undoubtedly ensure that the Treasury can fund itself. When the Fed has to choose between fighting the inflation and supporting the Treasury, I think it has to pick the Treasury.”
As the Fed enacts interest rate hikes and continues quantitative easing (or the slowdown of bond buying), Einhorn says, “This gentle response is akin to trying to clear your snow-covered driveway with an ice cream scooper.”
It isn't necessarily the Fed’s fault, Einhorn says. He explained that the Fed simply doesn't have the tools or bandwidth needed to clamp down on hyper-inflation under these conditions.
Gold is safety, Einhorn suggests.
If inflation is bound to continue rising, Einhorn says the answer lies in gold. “At that point, it’s best to have some gold,” Einhorn says, likening the commodity to financial insurance for investors in a volatile market with myriad obstacles across the globe (think wars and an ongoing pandemic).
“When countries don’t trust each other over bonds, and currencies, gold becomes the ultimate reserve asset,” he says. “Gold as a percentage of total reserves remains staggeringly low.”
Ultimately, Einhorn posits that the price of gold will increase, “perhaps much higher” than its current value.
The latest data from the Bureau of Labor Statistics says that the cost of living in the U.S. has increased 8.6 percent in the 12 months ending in May. Meanwhile, gold prices are at $1,830.84 per ounce on June 10, up marginally from $1,776.79 from this time last year.
Is Einhorn right about the Fed, inflation, and gold?
Einhorn has a history of accurate investment calls, though he has also been slammed for insider trading (the U.K. Financial Services Authority fined Einhorn $11.2 million in 2012 for insider trading). Still, Einhorn has a history of being on the side of the shareholder, fighting in court against Apple Inc. (AAPL) for increased shareholder rights. He has also been outspoken against industries like fracking, aka hydraulic fracturing, a highly controversial and environmentally dangerous practice of extracting fuel from the earth.
All things considered, Einhorn — worth $1.4 billion according to Forbes — could very well be right about the Fed’s limited capacity to quell inflation and gold’s potential as an investment hedge moving forward.