Einhorn Trades Bullion for Miners Amid Stock ‘Free Fall’
July 30 (Bloomberg) -- Greenlight Capital Re Ltd., the reinsurer that counts hedge-fund manager David Einhorn as chairman, traded bullion for gold miners in the second quarter as stocks in some of the companies slumped more than the metal.
“During the gold selloff in the quarter we sold a small amount of gold to take advantage of opportunities in gold-mining stocks that were in free fall,” Einhorn said today in a conference call to discuss results at the Cayman Islands-based reinsurer. “Overall, we modestly increased our exposure to this area, and our view towards gold has not changed.”
The Philadelphia Stock Exchange Gold and Silver Index of 30 miners plunged 34 percent in the three months ended June 30, compared with a 23 percent drop for bullion traded in New York. Einhorn has said central banks’ stimulus efforts will fuel inflation and increase the value of the metal.
The latest trade echoes a bet he made in 2011 when he cited a “substantial disconnect” between the price of gold and mining companies. In that instance, he cut holdings of bullion and bought into the Market Vectors Gold Miners ETF.
The reinsurer had $50.5 million of commodities at the end of the second quarter, compared with $90.3 million on March 31, according to a regulatory filing late yesterday. The cost basis for the investment fell to $41.8 million from $59.9 million.
The “decrease in commodities was due to a decline in the price of gold combined with the disposal of a portion of our physical gold holdings,” according to the filing.
Gold-mining companies have announced at least $15 billion of writedowns in the past two months after the precious metal’s declines. Newmont Mining Corp. (NEM), the second-largest gold producer, reported a surprise quarterly loss last week driven by impairments on the value of two Australian mines and stockpiles.
The Philadelphia index of miners has gained 10 percent this month, compared with the 8.3 percent advance in bullion. Gold futures for December delivery slipped 0.4 percent to $1,324.80 an ounce at 1:44 p.m. on the Comex in New York.
Einhorn makes both long and short bets on stocks for Greenlight Re, which helps insurance companies shoulder risk in exchange for premiums that he can invest. The portfolio includes wagers that Green Mountain Coffee Roasters Inc. will fall and that Apple Inc. will gain. He said another of his investments, General Motors Co. (GM), will extend its rally.
“General Motors’ North American business continues to improve even as it is still in the early stages of a substantial product-refresh cycle,” Einhorn said. “With the recent launch of the new pickup trucks, we believe GM is poised for rapid earnings growth later this year.”
The redesigned Chevrolet Silverado pickup and Impala are among the 18 new or refreshed GM vehicles in the U.S. this year that will transform the automaker’s lineup into one of the newest in the industry from one of the oldest.
The pickup is among GM’s most profitable vehicles and the Impala last week received Consumer Reports’s highest rating among all sedans, marking the first time in at least 20 years that a U.S. automaker has outscored all Japanese and European competitors in that segment.
Greenlight Capital Re said late yesterday that second-quarter profit was $28.5 million, compared with a net loss of $36.1 million a year earlier, on higher sales and investment income. The reinsurer advanced 4.5 percent to $27.01 today, the biggest one-day gain since 2011. The stock has climbed 17 percent this year.
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