Greenlight Capital hedge fund manager Einhorn Shorting Tech as ‘Cool Kid’ Stocks Show Bubble.
Greenlight Capital Inc., the $10.3 billion hedge-fund firm run by David Einhorn, said it was betting against a group of technology stocks as evidence grows of a bubble.
“There is a clear consensus that we are witnessing our second tech bubble in 15 years,” the New York-based firm said in a quarterly letter to clients today.
Greenlight said that companies it’s betting against may fall by at least 90 percent “if and when the market reapplies traditional valuations,” according to the letter, a copy of which was obtained by Bloomberg News.
Greenlight cited initial public offerings of technology firms that have “done little more than use the right buzzwords and attract the right venture capital” as evidence of how far along the current bubble is.
Greenlight, best known for wagering on a decline in Lehman Brothers Holdings Inc. before the bank collapsed in 2008, said it was betting against a group of stocks because it reduces the potential of a single investment becoming too costly. The firm didn’t identify the individual companies.
Greenlight questioned whether technology companies would be able to keep their highly skilled employees if they stopped giving them large amounts of equity. The firm said it was hard to ignore the future dilution of shares that result from paying employees in stock.
“Once again, certain ‘cool kid’ companies and the cheerleading analysts are pretending that compensation paid in equity isn’t an expense because it is ‘non-cash’,” Greenlight wrote.
Valuations are without a doubt back in bubble land. The only open question is whether the time is finally ripe for shorting.
Mike “Mish” Shedlock