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Greenlight Capital’s David Einhorn, whose hedge fund has returned twice as much as the market so far this year, said he has stopped building new stock positions for the time being and believes intensifying geopolitical risks can’t be ignored. “We are effectively on a ‘buyers’ strike’ again and did not establish any material long positions” in the three months ended Sept. 30, Einhorn said in his third-quarter investor letter dated Wednesday and obtained by CNBC. “It’s a tricky time and we remain worried about the direction of the market.” Einhorn’s hedge fund returned 12.9% in the third quarter, bringing its 2023 gains to 27.7%. That compares with the S & P 500’s 13.1% return through the end of September. The star manager said he has reduced his gross exposure to enable him to deploy capital into specific, new ideas, but finds himself cautious on the broader market because of unpredictable and risky geopolitics. “The complacent investor view that geopolitics should be ignored might be true, except for the times when it isn’t. We suspect we are in one of those times,” Einhorn wrote. Specifically, the 54-year-old investor is worried about a surge in oil prices amid the war in the Middle East and Russia’s continued war in Ukraine , which could tip the U.S. economy into a severe downturn. He said he has limited exposure to U.S. consumer spending, while his positive net exposure is expressed “almost entirely” through the energy sector. “Higher oil prices would squeeze the consumer and likely cause a recession. The resulting inflation would also put the Federal Reserve in the uncomfortable position of having to fight rising prices at a time of rising unemployment. This leaves the market outlook very concerning,” he said. So far in the fourth quarter, West Texas Intermediate crude oil futures prices are down about 15%, gasoline futures are lower by more than 11%, while the S & P 500 Energy index has fallen almost 9%. Einhorn, a Cornell grad, founded Greenlight Capital in 1996 and went on to produce a whopping 26% annualized return for the next decade, far outpacing the broader market and many peers. His stellar track record made him one of the most followed hedge fund managers on Wall Street. In recent years, he’s found success short selling as well as purchasing value stocks that have buyback strategies in place. Einhorn said his biggest winners in the third quarter were Consol Energy , Capri Holdings and Black Knight. His short position in stocks tied to innovation was also profitable last quarter, as well as a macro position that benefited from both declining share prices and higher long-term interest rates, Einhorn said. “If we are right, current extreme levels of geopolitical tension will lead to lower stock prices over a timeframe that lasts more than a couple of hours,” Einhorn said. “At that point, we intend to be positioned to buy beaten-down stocks and some truly distressed debt, should the opportunity present itself.”
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