David Einhorn’s Bubble HuntingThe Acquirer's Multiple
During their recent episode of the VALUE: After Hours Podcast, Taylor, Brewster, and Carlisle discussed Einhorn’s Bubble Hunting. Here’s an excerpt from the episode:
Tobias: Einhorn’s written his latest paper. He says we’re in the midst of a gigantic bubble, which as a number of people have pointed out– so the name of that paper that I was talking about is Why we should not make mean log of wealth big though years to act are long. Written in 1979 by Paul Samuelson. It’s actually harder to read with one– he’s bent over backwards to write it with one syllable, but give the guy credit for actually getting it done.
Bill: It’s a dirty thing to do, I respect it.
Tobias: Yeah, very much so. He thought there was such idiots that he could only write the paper in one syllable, so they’d understand it. That’s true.
Bill: Good for him.
Tobias: Pretty good flex too to be able to do it. It’s hard.
Bill: Yeah, that’s true.
Tobias: I read Einhorn’s paper. He says we’re in the midst of a big bubble. Folks have been pointing out that he’s been saying that since 2014.
Jake: Do you think he writes these himself still? Or do you think there’s someone else writing them?
Tobias: Yeah, I don’t know.
Jake: It’s signed Greenlight Capital.
Tobias: But that’s what you do when you’ve got partners. You don’t sign one person’s name, you sign the partnership name.
Bill: Wouldn’t you write it? I’d want to write it. It’s the voice of the firm.
Jake: I’m just asking. I’m just throwing it out there.
Bill: I think he writes it.
Tobias: I’m amazed that Hussman was able to– Hussman now doesn’t write weekly. He writes it– I think it comes out monthly or quarterly or something like that, but he kept that weekly for a long time. Each one of those was like a dissertation. I don’t know how he did it.
Jake: Yeah. I don’t know.
Tobias: I just wanted to pull out one part of Einhorn’s letter because I thought it was pretty interesting. It’s something that I’ve discussed before. But he said on March 10, 2000, nobody knew that it was the top. Even by September 2000, it wasn’t clear. There was no obvious event that marked the top, only in hindsight do people try to back fit an explanation. And then he says, our working hypothesis, which might be disproven, is that September 2, 2020 was the top and the bubble has already popped.
Jake: That doesn’t sound like second inning.
Bill: Yeah, that’s because he doesn’t listen to the right podcast, dummy.
Bill: Come on, Dave. Holler at you boy, inning two.
Tobias: That’s something that I have noticed before, that the bubble doesn’t pop from top– the bottom– there seems to be some sort of like sideways drift for about a year before you really get into the bear market portion of the bear market. And it is only in retrospect that people go back– there’ll be some pullback, but then the market rallies up again or just drift sideways for a long period of time. And then, you get the back half is where all of the–
Jake: What do you think is happening there? Is it the psychology, like complacency? What Grantham said that there’s always retail participation at the very end and that’s one of the checkboxes. They’re there to make money very quickly, that’s what sort of sucks them in. You just see prices going up like crazy, and you can’t miss out.
It’s my chance to get rich quick. Well, if things stop going up, and they’re just going sideways, like boredom sets in, you don’t have a fundamental reason for owning it other than– it was going up before, I’m trying to get rich here. So, maybe that’s when you start punting it and then the selloff really starts to pick up steam. And I don’t know, that’s just my armchair quarterback.
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