Greenlight's Einhorn questions Fed "spending spree"

NEW YORK Wed Oct 24, 2012 11:28am EDT

NEW YORK (Reuters) - Hedge fund manager David Einhorn raised concerns about the U.S. central bank's latest round of stimulus, saying Federal Reserve Chairman Ben Bernanke "announced desperate measures in non-desperate times."

"What once looked like a purchasing spree of unimaginable proportions is now just the monthly budget," Einhorn said in a quarterly letter to investors dated Tuesday. He runs the $7.7 billion Greenlight Capital hedge fund firm and is one of the industry's best-known managers.

In September, the U.S. central bank said it would begin a new round of bond-buying to stimulate the economy, purchasing $40 billion of mortgage debt each month until the outlook for jobs improves substantially.

Einhorn asked what tools the central bank and Congress would have if the U.S. economy goes into another recession, which he said would occur "sooner or later."

"When (the recession) comes, it is very likely we will enter it prior to the Fed having 'normalized' monetary policy, and we'll have a large fiscal deficit to boot," Einhorn said in the investor letter, which Reuters reviewed. "If the Fed is willing to deploy this new set of desperate measures in these frustrating, but non-desperate times, what will it do then?"

Although Einhorn said he did not have the answer to that question, he said allocating a large part of a portfolio to gold still seemed like a "a very good idea."

Besides Bernanke, central bankers in Japan, the United Kingdom and the European Union have been on a "money printing spree" Einhorn said. "While the ink may be endless, the market's tolerance is not (though there is no sign that is nearly exhausted)."

In the investor note, Einhorn reiterated his bullish positions in automaker General Motors Co and healthcare company Cigna Corp, his bet against Green Mountain Coffee Roasters Inc and a new short position in fast-food chain Chipotle Mexican Grill Inc.

If hedge fund managers are short on a stock, they are predicting the price will fall. If they are long, they are expecting the price to rise.

At the end of the third quarter, Greenlight's largest disclosed long positions were Apple Inc, Cigna, General Motors, gold and Seagate Technology.

His Greenlight Capital funds gained 9.4 percent net of fees and expenses in the third quarter, bringing returns to 13.2 percent year to date. Hedge funds on average were up about 5 percent for the year through September, trailing the broader stock market's gain of 16.4 percent.

Since Greenlight's inception in 1996, Einhorn has provided investors with average annual returns of 20 percent.

(Reporting by Katya Wachtel; Editing by Lisa Von Ahn)

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