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Jae Jun
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Einhorn: Short on Moody’s Corp. and S&P

May 27, 2010

Hedge fund manager David Einhorn, who had questioned the health of Lehman Brothers four months before its collapse, said yesterday at the Ira Sohn Conference that he is still shorting Moody’s Corp, citing the short-term approach it uses in its assessments.

Shares of the rating agency plunged 6.6 percent to $19.50 in after-hours trade, following Einhorn’s comments.

Einhorn, whose Greenlight Capital manages $6.5 billion, reiterated that Moody’s Investors Service continues to use a short-term outlook — only 12 to 18 months — to analyze data to assess countries’ abilities to finance themselves. He spoke before some 1,200 hedge fund executives at the annual Ira Sohn Investment Research Conference.

Einhorn last fall had criticized Moody’s, saying it “…makes five-year medium-term qualitative assessments for each country, but does not appear to do any long-term quantitative or critical work.”

Standard & Poor’s, the rating agency owned by McGraw-Hill’s, shares the same problem, Einhorn said.

He thinks the euro zone debt crisis could cause more problems for the rating agencies.

What’s more, Einhorn said the credit debacle in Greece and its euro zone neighbors could be a prequel to what might occur in the United States.

The Greek crisis might be the first sign the “sovereign debt bubble” is “popping,” adding that the United States still has many inadequately capitalized banks and it is difficult to get an accurate gauge on their health.

With the instability in the banking financial system along with poor government policies, Einhorn has increased exposure in gold and gold securities.

Einhorn says his fund recently bought shares of African Barrick Gold because it is cheaper than other gold miners.

Einhorn said last week at Greenlight Capital Re’s investment meeting that he still holds physical gold. “We tend to think of gold as a currency,” he said, adding, “I think there’s going to be a lot of inflation.”



About the author:

Jae Jun is the author of Old School Value, a value investing blog dedicated to the Old School methodologies and teachings of the investment greats such as Graham, Buffett and Fisher. The blog deals with finding intrinsic value, fundamental stock analysis and special situations including spinoffs and merger arbitrage.

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