David Einhorn,
president of Greenlight Capital, spoke with Bloomberg Television’s
Stephanie Ruhle and Erik Schatzker today about technology stocks,
investment strategy, Federal Reserve policy, and activist investing
and high-frequency trading.
On a March 26 dinner conversation with
Bernanke, Einhorn said: “I got to ask him all these questions that
had been on my mind for a very long period of time, right? And then
on the other side, it was like sort of frightening because the
answers weren’t any better than I thought that they might be. I
asked several things. He started out by explaining that he was 100
percent sure that there’s not going to be hyper inflation. And not
that I think that there’s going to be hyper inflation, but it’s
like how do you get to 100 percent certainty of anything?”
Einhorn said he was keeping an “open mind”
about new Fed Chair Janet Yellen. “I would love to see if she had a
better reason for rates to remain at zero at this stage of the
economy.”
Highlights include:
*TECH IS A SMALLER
BUBBLE; MASSIVELY LONG TECH
*VALUATION FOR SOME COMPANIES GOTTEN
OUT OF CONTROL
*THIS YEAR ENVIRONMENT TURNED FOR TECH
STOCKS
*RECENT TECH IPOS SHOW GETTING END OF CYCLE
*CITES KING
DIGITAL, VEEVA IPOS AS SIGN OF TURN
*CENTRAL BANKERS SHOULDN’T
SET POLICY FOR MACRO TRADERS
*BEEN CRITICAL OF BERNANKE FOR LONG
TIME; FRIGHTENING ANSWERS AT DINNER
*KEEPING OPEN MIND ABOUT JANET
YELLEN
*FINDS BERNANKE ASSURANCE LACKING ON HYPERINFLATION
RISK
*GREENLIGHT TRADER GUTKIN HELPED NETWORK FOR IEX
*SAID
WOULDN’T CALL STOCK MARKET RIGGED
**BLOOMBERG
TELEVISION**
STEPHANIE RUHLE: We’re going to get right to
our second big exclusive guest this morning. We are shifting
from telecom to hedge funds. David Einhorn is here. He
runs the $10 billion long-short fund Greenlight Capital, and he made
headlines recently by declaring the tech sector to be in a bubble.
So we need to clarify that because as usual, the media never seems to
get it right David, now do we?
DAVID EINHORN: Well, I don’t know.
We’ve written — we wrote in the letter that there’s — that we
thought there’s another tech bubble, but we said it was an echo
bubble. And I’d like to emphasize the echo, meaning it’s a
smaller bubble. It’s not contained with all tech. We’re
actually massively long tech. We’re — our biggest position
is Apple and then Micron and Marvel (ph), but we think that there’s
a sub-segment of tech which is high momentum stocks that have gotten
completely out of control in terms of their valuation, and we think
that those stocks actually did reach sort of a bubble proportion.
RUHLE: And they’ve gotten out of control why,
because everyone’s just rushing to be in the tech sector and buying
anything that they’ve got (ph)?
EINHORN: Well it’s a combination. These are
mostly very good businesses, but there’s a difference between what
the right price for a very good business is and where some of these
stocks have gotten. And this is what happens in bubbles and what
happens in momentum. If you have good news and it’s a penny or a
percent better than you thought it was and then the stock has to gap
up 15 percent higher in response to that, and you do that four or
five or six quarters in a row, before you know it the stock has
doubled or tripled but the results might only be 5 percent better
than you thought that they were and the valuations got out of
control.
ERIK SCHATZKER: Valuations out of control.
David, you wrote in your letter to investors for the first quarter
that you see some of these stocks dropping by 90 percent. So good
businesses that are overvalued by that much?
EINHORN: Well let me clarify it. What I was
saying was is in the previous bubble back in 1999-2000, even the best
stocks fell –
SCHATZKER: Right, like Amazon for example or
Cisco, right?
EINHORN: And those were the best ones. The
worst ones fell even more than that. Some of them practically went
out of business, right? And what I’m saying is when these stocks
become disconnected, they’re very difficult to short because when
they’re at a price that’s a silly price they can just keep going.
And so twice a silly price is not twice as silly.
SCHATZKER: And some of them are recent IPOs
where the float is tiny, right?
EINHORN: Well that too, but it doesn’t matter
because it can be a very big company or it can be a small company.
But twice a silly price is not twice as silly. It’s still just
silly. And so once these things disconnect and then they decide to
come back the other way and people say, all right, I’m a grown
investor. What would I be willing to pay for this? But I’m
disciplined, so I have to look at the multiples now. And now you
start looking at the multiples. There’s a really long way for these
stocks to fall. And then where a value investor gets interested it’s
— it’s even less (inaudible).
SCHATZKER: Which multiples matter to you the
most?
EINHORN: Well for simplicity, just cal it PE
for now.
SCHATZKER: Well some of them don’t have E.
EINHORN: (Inaudible) that’s a problem because
some of these businesses, not only don’t they have earnings, they
don’t really have serious plans to make earnings in the future.
SCHATZKER: I look — I ran a — because I
know you do this kind of thing. Now my attempt at it is far less
sophisticated and comprehensive than yours, but I looked at stocks
with a billion dollars of market cap trading at 10 times price to
sales and that are traded here in the United States. There’s 89 of
them, and the first nine that come up don’t have any earnings at
all and aren’t expected to have any earnings in the next 12 months.
And we’re talking about stocks trading at as many — as much as
2,900 times sales.
EINHORN: Wow. That’s a lot.
SCHATZKER: Yeah. Now 89, and that doesn’t
even include the one that I know you’ve shorted, Athena Health.
EINHORN: Right. Right. No. Look, I don’t
think we have a generalized stock market bubble, but I do think we
have a certain number of stocks that have caught everybody’s fancy,
attention. There’s good stories behind a lot of these stocks and
these companies, but the valuations I think have just gotten out of
control.
SCHATZKER: So what’s in — you’ve taken a
different approach than perhaps the conventional route, which would
be pinpointing, identifying overvalued single-name stocks and
shorting them and instead gone for a basket approach. What’s in the
basket?
EINHORN: Well, a whole number of stocks.
Probably many of the ones on your list. We identified one
yesterday as an example. I don’t really want to get into all the
different ones that are in the basket, but I think it’s — I think
people can more or less sort these things out. Certainly we’re not
saying like Apple is a short or Micron is a short. We’re long those
things.
SCHATZKER: But is Twitter a short, for example?
Twitter’s a company that people, as you know, have raised many
valuation concerns about and it shows up on my list.
EINHORN: Yeah. Well here’s the thing. Like
when we put out this letter, half the people were very upset that
they thought we were talking our book. And the other half of the
people were upset that we weren’t telling them all the names. So
you really couldn’t please anybody. So I thought I’d bridge this
yesterday by giving out one, by giving out one.
RUHLE: But why do you have to please anyone?
You’re a hedge fund investor. The only people you need to satisfy
are your investors. Go fish. You don’t have to write a letter. You
don’t have to tell anybody anything.
EINHORN: Well let’s be clear. The letter is
to our investors.
RUHLE: But everybody gets it.
EINHORN: This is an investor letter, right? It
gets out there. We have a lot of investors, so we have to send it to
a lot of people. And as a result, it does — it does get out there.
And (inaudible).
RUHLE: Well why can’t you talk your book?
Isn’t that what everybody does every day of their lives?
EINHORN: I think adding information to the
market so that people can sort these things out, I think it’s
constructive and that’s why we tend to sometimes share our
thinking.
SCHATZKER: You started to come to these ideas
not just in the first quarter but several quarters ago. In fact, in
the third quarter you wrote to your investors that investors that —
that the market tin general was getting increasingly creative in its
behavior. What did you mean by that and is it more creative now, and
if so, how?
EINHORN: Yeah. Well look, I think we — the
best we can do as value investors is we’re never going to be long
these things. We’re not going to be long Athena Health at –
(CROSSTALKL)
SCHATZKER: — guy. I can see that.
EINHORN: We’re disciplined value, guys. So
the best that we can do is hope to not be short them too much at the
wrong time. And so we did a very good job I think in hindsight last
year not really being short these or not being short much of them.
And then this year it seemed like the environment was beginning to
turn and maybe things were heading towards a peak, and so we shorted
a whole bunch of them.
RUHLE: You want to talk about Athena?
EINHORN: Sure.
RUHLE: So walk us through the idea behind it.
EINHORN: Sure. Look, I think Athena is — is a
very good example of this. This is a good business with a good
strategy and a good product and a good management that’s doing good
things for the world, but it stock is just at the wrong price and
it’s really as simple as that. And what happened was is a few weeks
ago Morgan Stanley came out with this conventional DCF valuation
where they projected out the results until 2030 and we just looked at
that and said, wow, how are you going to get from a 10 percent margin
before stock comp to a 30 percent margin? And we thought about the
business, and we just don’t think that the assumptions that they’re
using there are plausible.
RUHLE: Well you say — or you said in your
presentation they weren’t a cloud company. What exactly would
constitute a cloud company then?
EINHORN: Well the way I look at it is there’s
two types of — of these Internet companies. There’s ones that
have sort of a network effect and there’s others that don’t
really have network effects. A network effect to me means that having
more users on the network makes the site more valuable to each user.
So eBay is a great example of this. Everybody likes auctions and —
and knows if you want to auction something off you go to eBay because
that’s where the buyers are going to be and the buyers know where
the sellers are going to be. So it’s very hard for a new entrant to
come in and penetrate that. So eBay is able to extract value from
that network by charging fees and commissions and so forth.
But there’s other types of Internet companies
where your relationship is very much with the provider. So having
lots of customers, it might help the provider be a little more
efficient. It might help them run their business better, but it
doesn’t really present them with a competitive position that allows
them to earn like huge excess profits over a long period of time. And
I think Athena sort of falls more into that latter category.
SCHATZKER: David, if I understand it correctly,
you have raised the concern that Athena may not be able to compete
with other large vendors like Epic (ph), for example.
EINHORN: Yes.
SCHATZKER: Now –
EINHORN: And the bull case really requires them
to make a huge inroads into the hospital market.
SCHATZKER: Okay. So I can understand how
investors may have duped themselves into believing that Athena Health
can do that, but what about customers? Ascension Health is become a
client of Athena Health and that’s a pretty big company. Are they
similarly duping themselves?
EINHORN: No, no, no. Athena has a good product
and — and they have customers and they have real customers, and I
wouldn’t tell Ascension or anybody else not to use their product. I
think it’s a fine product. I think the market opportunity is maybe
smaller than people think because they’re already up to 37,000
doctors, which is a lot, and they concentrate in these — in the
ambulatory business, so not in the hospitals.
So a large amount of the doctor population is
away from them. And if hospitals buy up doctor practices, the
available pool shrinks. Plus there’s been a huge move towards
electronic health records. The stimulus provided huge incentives for
doctors to take these systems on and a lot of them have done that.
And Athena has captured part of that, but there’s been now a huge
penetration of electronic health records and in the next year or two
we think they’re going to run into a saturation and their growth is
going to slow down.
RUHLE: And what’s your timing? So I want to
just make it — I know you’ve said — I want to make it very
clear. This is not the case — the way you’re looking at this,
you’re saying it’s a good company. This is not a Green Mountain,
a Lehman. Those were much different scenarios. For here, this is
about price. Correct?
EINHORN: That’s correct.
SCHATZKER: When does the market wake up and
revalue these overvalued stocks?
EINHORN: Well I don’t know. Perhaps it
already has. It’s possible that the top was in — a few weeks ago.
SCHATZKER: So the biotech sell-off, for example
–
EINHORN: The stocks have come in a lot. Now we
won’t know. In a year it will be very clear was that the top, was
that not the top, did they rally back. Certainly they’re going to
have sharp rallies even if they are going to continue to go down, and
we’ll know in hindsight whether this was the top or whether this
was a correction and so forth. Our strategy is to have relatively
small positions in a large number of these things and let time be on
our side.
SCHATZKER: Talk to us a bit more about the
warning signs. Stephanie and I remember what they were — what they
were back in the 1999-2001 timeframe.
RUHLE: Every single night in New York City
another tech party for another company that you didn’t know what
they did.
SCHATZKER: Eyeballs, for example, price to
earnings ratios of 1,000 or more. What are they today?
EINHORN: Look, I don’t know about the
multiples, but we’ve seen — we’ve seen a lot of concentration
on addressable markets. We’ve talked about a lot of things with
average (inaudible).
SCHATZKER: So people just like blue-skying
their opportunities.
EINHORN: You mentioned it. Price to sales
because there is no earnings, right? And there’s not really a
forecast for earnings over any intermediate period of time. There’s
just a hope that you’ll achieve a critical mass and eventually
margins –
SCHATZKER: Well hey, there’s a good example
for that, right? Amazon generates profit but at an incredibly skinny
margin. And it seems focused on building a customer base and revenue
more than anything else, and for a long time investors have been
pretty happy with that idea.
EINHORN: The stock has done terrifically.
SCHATZKER: Until earlier this year.
EINHORN: The stock has done terrifically,
absolutely, and they can continue to do terrifically until — until
they don’t. But the truth of the matter is with something like like
Amazon –
SCHATZKER: (Inaudible) the way things go,
right?
EINHORN: With Amazon you’re still looking at
a rather fancy — fancy PE there.
SCHATZKER: So back to the warning signs. What
else? What else –
(CROSSTALK)
EINHORN: — you saw things that — look, I
went through this in 1999 and 2000 and — and tried to watch what I
saw. Some things happened was shorts couldn’t stay involved. The
daily pain was simply too much and you saw these parabolic or
whatever kind of moves, and you saw that in a lot of these stocks. If
you put up the stock chart of Athena, it certainly did that up to
200. And it was very, very hard. You could see short sellers being
carried out of these things where even if they thought that they were
right they weren’t able to keep (inaudible).
SCHATZKER: And there we see the corrections.
EINHORN: And then you also see that the short
interest goes way down, right? And so in a lot of these stocks
there’s much lower short interest now than there was before.
Another thing you saw was I think the King Digital IPO. These IPOs —
people were buying these IPOs without thinking too much about them
because they were going up 40 percent the next day or 30 percent the
next day.
SCHATZKER: Or because their kids played Candy
Crush.
EINHORN: No, not that one, but all the other
ones that came out in the previous few weeks were having these huge
pops. And when there’s huge pops in the IPOs, everybody calls up
the underwriters and just gets them whatever it is and they don’t
really analyze the companies or think about it. They just want the
money on the first — first day’s worth of trading. And then if
the stocks hold those prices it brings out the next IPO.
What you saw with King, they priced it not so
well and then the stock traded down. And I think around that same
time there was a secondary offer of — of Veve. VEVE is the ticker
that the — that they did. They priced that in the hole (ph) and
then that didn’t trade very well. And that sort of told me that we
were beginning maybe to get towards the end of — of the cycle.
RUHLE: Had those two names in your basket?
EINHORN: I’m not mentioning any more names.
SCHATZKER: How many are in the basket?
EINHORN: Lots.
SCHATZKER: How many is lots? Well I don’t
know, are we talking about 100 names?
EINHORN: Dozens. Dozens of names.
SCHATZKER: So bigger than a bread box, smaller
than a Volkswagen Beetle.
EINHORN: Perfect.
RUHLE: Does it make it exceptionally hard to
know how to be a value investor right now? Because fundamentally, no
one’s going to disagree with you. But when we look at the IPO
market, when we look at hedge funds, insurance companies everyday
walking into work, they need to return. These deals look great. When
they know they can get a big allocation, it’s attractive to buy.
How do you keep that discipline at a time when momentum seems to be
on your side?
EINHORN: Well, sometimes it’s a struggle and
— and you have to play — we like — we like the time arbitrage.
We like to get our analysis right and sometimes just wait longer than
other people, and that’s one of the things that — our horizon for
investments is not usually a day or a week or a month. We tend to on
the long side be really one to four years, which is ancient on Wall
Street these days particularly with hedge funds.
RUHLE: Then is it unfair that –
EINHORN: There’s a lot to do on the long
side.
RUHLE: Then is it unfair that activists are
getting this brand right now? They’re good-time Charlies. They’re
only in for a very short period, when Bill Ackman just said yesterday
he’s got a six to seven-year time horizon. You’re saying four
years. Do activists have the wrong brand right now?
EINHORN: Well I’m not going to sort out the
differences between me and Bill. I think that they’re considerable.
I think for us we’re doing the same thing that we’ve always done.
We’re not suddenly more activist. In fact, we’re really not that
activist. We did a thing with Apple about a year and something ago.
Before that I think it was four or five years prior to our prior
activism thing. It doesn’t mean we couldn’t turn around tomorrow
and wind up declining to do something, but these are very — very
infrequent. Yes, but I’m not going to argue with people who want to
characterize. I don’t see myself that way.
RUHLE: All right. David, we have to take a
quick break.
SCHATZKER: I’m Erik Schatzker with Stephanie
Ruhle and David Einhorn. He’s –
(CROSSTALK)
SCHATZKER: — of Greenlight Capital. So far a
terrific conversation. David, I want to turn our attention away from
individual stocks, we might go back there in a moment, and talk about
the macro environment, quantitative easing, things that you have for
a long time raised concerns about.
You were at the Ira Sohn conference yesterday
presenting one of your best investing ideas, shorting Athena Health.
And Paul Tudor Jones, another hedge fund manager, was at Ira Sohn
yesterday and he said this. “What we desperately need is a macro
doctor to prescribe central bank Viagra because otherwise it’s
going to continue to be somewhat dull.” Now Paul may share your
concerns about quantitative easing, but quantitative easing has been
awfully good for people who are long the stock market at the very
least. Do you share that view?
EINHORN: Well look, I adore Paul. We do Robin
Hood together. He is one of my — my favorite managers around.
SCHATZKER: And an awfully smart guy.
EINHORN: And an awfully smart guy. I don’t
really think that they should set macro policy to create volatility
for macro fund managers. That doesn’t strike me. So I think he’s
going to have to live with the environment that — that he gets on —
on that. That being said, as you know, I’ve been very critical of
the monetary policy over the last few years.
SCHATZKER: Jelly donuts and all.
EINHORN: They jelly donuts.
RUHLE: All right. Well you recently had dinner
with Ben Bernanke. What went down? We didn’t get to be there.
EINHORN: Well, it was — I watched him for
years in front of Congress and speaking and watched him on TV and “60
Minutes” and –
RUHLE: And what was your opinion of him before
you had dinner?
EINHORN: I was — I’ve been critical. I’ve
been critical of him for a very long time. And the dinner for me, in
one way it was cathartic because I got to ask him all these questions
that — that had been on my mind for a very long period of time,
right? And then on the other side, it was like sort of frightening
because the answers weren’t any better than I — than I thought
that they might be.
SCHATZKER: What did you ask him?
EINHORN: I asked several things. He started out
by explaining that he was 100 percent sure that there’s not going
to be hyper inflation. And not that I think that there’s going to
be hyper inflation, but it’s like how do you get to 100 percent
certainty of anything? Like why can’t you be 99 percent certain and
like how do you manage that risk in the last 1 percent? And he says,
well, hyper inflations generally occur after wars and we didn’t
have — that’s not here. And we — we — there’s no sign of
inflation now and Japan’s done a lot more quantitative easing than
we’ve done, and they don’t have it. So — and if there is a big
inflation, the Fed will know what to do. That was kind of the answer.
And –
RUHLE: What did you say?
EINHORN: That was it. Then it went to the next
question. So then a few minutes later it came back and I got to ask
him about the jelly donuts. And my thesis is that it’s like too
much of a good thing. Like lowering rates and quantitative easing and
these stimulative things, they help but with a diminishing return.
And eventually you go too far and it’s like eating the 35th jelly
donut. It just doesn’t help you. It actually slows you down and
makes you — makes you feel bad. And my feeling has been that by
having rates at zero for a very, very long time the harm that we’re
doing to savers outweighs the benefits that might be seen elsewhere
in the economy. So I got to ask him about this.
SCHATZKER: Okay, and what did he say?
EINHORN: Well he said — he said — first of
all he says, you’re wrong. That was good. And then he said the
reason is if you raise interest rates for savers, somebody has to pay
that interest. So you don’t create any value in the economy because
for every saver there has to be a borrower.
And what I came back to him was I said, but
wait a minute. You said for a long time we haven’t had enough
fiscal stimulus, and who’s on the other side of the low interest
trade? It’s the government. And so if the government — if we
raise the rates, the government would have to pay more money to
savers. You’d have the bigger deficits. You’d create the
stimulus, the fiscal stimulus that you’ve been complaining that
Congress wouldn’t give to you, right? And savers would benefit from
the higher rates and because savings is spent at a very high rate in
terms of interest — interest income on savings is spent at a high
percentage, you’d get a real flow through into the economy.
SCHATZKER: One of the questions you’ve raised
about quantitative easing in one of your letters to investors was
about inequality. Did you get any satisfaction from Ben Bernanke on
the question of whether quantitative easing exacerbates inequality?
EINHORN: Yeah. He — he sort of — that did
come up and I don’t remember exactly what he said. So I don’t
want to –
SCHATZKER: It wasn’t memorable.
EINHORN: No.
SCHATZKER: How about this notion that Warren
Buffett has propagated that the Fed has become with its $4 trillion
balance sheet the greatest hedge fund in history?
EINHORN: Yeah. I’m not sure that’s meant as
a compliment.
SCHATZKER: But did that issue come up? There
were a number of people (inaudible).
EINHORN: Yeah. There were people — there were
people who were asking, yes, and he says — he says the Fed can
manage their way out of it when the time comes.
SCHATZKER: But in a persuasive way? Did he —
did he convince anyone?
RUHLE: Or did he say Janet’s problem now, not
mine? I’ll have another drink.
EINHORN: He was — he was very supportive of
Janet.
SCHATZKER: No doubt.
RUHLE: Are you?
EINHORN: I want to keep an open mind here. I
saw her speak at the Economics Club a couple weeks ago and I was
impressed by her speech. I thought — she said, look, we have a base
expectation, but things change. And when things change, we’re going
to change our policy. I thought that was good. She’s — I don’t
look at one economic factor to drive things. I’m going to look at
all of the factors. I thought that was good. I think the way she’s
approaching problems at least conceptually is very good. I’d love
to see if she has a better reason why rates should remain at zero at
this stage in the economy, but you take these things and see where
she goes. She’s just gotten started.
SCHATZKER: David, you wrote a few months ago,
“No one is really sure what the Fed is focused on.” Between your
dinner with Bernanke and Janet Yellen’s public statements to the
press or in congressional testimony, do you feel you have any better
an idea of what the Fed is focused on?
EINHORN: Well, I’m not sure — I’m not
sure where you’re quoting me from exactly. And so I’m not sure –
SCHATZKER: Third quarter letter to investors.
EINHORN: Yeah, thank you. I could use a
sentence on either side.
SCHATZKER: Fair point, fair point. I don’t
have the context. I do have it here, but I’m not going to bother
looking it up.
EINHORN: Thank you. I apologize.
SCHATZKER: Do you feel — no, that’s fine.
Do you feel any more confident about the Fed’s ability to manage
that $4 trillion balance sheet than you felt before? You worry, for
example, that if we run into greater economic — if not greater —
if we run into economic headwinds at some point in the next few years
and the Fed still has trillions of dollars, it’s not going to be
able to (inaudible).
EINHORN: If you start — if you start at a
zero rate and you start with a huge amount — huge balance sheet and
the economy turns down, the available tools that they will have are
limited and there’s a risk that they will have to choose a tradeoff
between doing something exceedingly aggressive, right, versus
allowing a — a crisis situation to fester. And they might choose to
do something exceedingly aggressive and it may have a — that 1
percent outcome.
RUHLE: David, why I — while I only like to
see you on Bloomberg Television, we had a chance to see you on “60
Minutes” just a few weeks ago right around Michael Lewis’s book
and Flash Boys. And when I first saw “60 Minutes” I said, I get
it. David Einhorn’s behind this. He’s supporting Michael Lewis’s
argument. And then Michael Lewis sitting right here said David
Einhorn’s a dumb tourist in this. Help me make sense of all this.
Where do you stand? Because you’re not a dumb tourist to us.
EINHORN: Well thank you. Look, I think what we
saw was we saw a little bit of a structural problem in the market.
The market has gotten better and better and better over the years,
but there’s a little bit of inefficiency with some of the market
structure with the fragmentation. And we ran across these fellow who
had an idea as to how to make a better platform for investors, IEX.
And so we said here’s a little bit of a problem. We can help be
part of that solution. We invested a little bit of money with them.
We encouraged our friends to invest with them.
RUHLE: All right. David, we have to go to a
quick commercial. We’ll be back with more in just a minute. Stay
here.
SCHATZKER: With us, David Einhorn of Greenlight
Capital. David, we almost did something really unfair to you, and
Stephanie and I just aren’t about that. So –
RUHLE: It was filling me with anxiety. You’re
giving the answer, the music’s beginning, I’m stressing.
SCHATZKER: Stephanie asked you a really
important question and we didn’t give you enough time to answer.
EINHORN: You’re really nice not to give me
the hook like that. I appreciate that.
SCHATZKER: So let’s do it again. Stephanie
was asking you about high-frequency trading. Michael Lewis’s book
Flash Boys, the exchange, the new kind of marketplace — stock
marketplace, IEX, that he’s praised and you’ve supported. And
then our interview with Michael Lewis in which he referred to you
almost ironically because it was in the context of a poker game,
something that you happen to be pretty good at, as a dumb tourist at
a casino. So let’s go back to what you were saying before.
EINHORN: All right. I was explaining before
that we — we were educated about some of the problems in the market
and we helped gather up friends to invest in IEX and get that
platform going off. And I should really actually call out my head
trader Bruce Gudkin (ph) who did an amazing job of talking to other
traders, talking to the investment banks trying to help them build
their — their network. And we’ve been really big supporters
because we think that this is one of several things that probably
need to be done to help level the playing — level the playing
field.
SCHATZKER: Okay. So how do you go from being an
IEX supporter, backer, organizer effectively, together with your head
trader Bruce, to in Michael Lewis’s description a dumb tourist? I
don’t — I don’t really — do you get –
(CROSSTALK)
SCHATZKER: Why would he single you out as the
schmoe at the — at a rigged poker table?
EINHORN: Yeah. Look, that’s okay. Stephanie,
you asked him about his fact checking.
RUHLE: Yeah.
EINHORN: What he does is sense checking rather
than fact checking. And so that’s probably what he –
(CROSSTALK)
RUHLE: Isn’t that dangerous to do to –
EINHORN: He wanted to tell his story his
certain way. I think he was providing a good service because it is
based on a true story and I think he is identifying some problems in
the market that — that can be improved upon. And so let’s not
quibble too much about how he tells it.
RUHLE: Would you call the stock market rigged
in the way that he does or simply needs improvement?
EINHORN: No, I wouldn’t — I wouldn’t go
that way at all. But there are some opportunities for it to get
better for investors. And I’m hoping that IEX would — would be
part of that.
SCHATZKER: David, it’s been a pleasure having
you back here on “MARKET MAKERS.”
RUHLE: An absolutely pleasure.
