- Hedge fund icon David Einhorn said at CNBC's Delivering Alpha investor summit on Wednesday that he has increased his market bets on inflation as a result of the belief that Donald Trump's second-term policies could overheat the economy and the administration will be willing to tolerate it.
- He cited tax cuts and an immigration crackdown that could pressure the labor market and wages as factors that could take the consumer price index back into the 3% to 4.5% range, though not back anywhere near the massive inflation levels of the past few years.
Greenlight Capital president David Einhorn said the election results were good in terms of avoiding the issues of political stability that he was worried about not long ago, but for the economy, there is a much bigger problem coming as a result of what he expects from Donald Trump's second-term policies: higher inflation.
"We have increased our bets on inflation," he told CNBC's Leslie Picker at CNBC's Delivering Alpha investor summit on Wednesday. "We will have another inflection up in inflation," he said. "The policy mix being proposed is inflationary and we will see more of that over the next few years."
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Einhorn forecast inflation may be headed back to 3.5% to 4.5%, but not back to the 7% to 9% level that was the worst in four decades for the U.S. economy.
The latest CPI data released Wednesday showed inflation in line with market expectations, at 2.6%. The latest wholesale inflation data, reported Thursday, was also in line with expectations.
Einhorn's concerns come from all the tax cuts Trump would like to make, and even if he does not pursue them all, or Congress refuses to pass them all, the combination of some tax cuts in a strong economy with wage growth — and an immigration policy that will be inflationary in terms of cost and labor — will lead to "a bunch of inflation."
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"What they chose to do about that, I don't know. There is an argument for tolerating it and trying to run the economy as hot as possible. I don't really know what they will do," he said.
Einhorn said he isn't bearish on the stock market even though he has recently talked about how expensive he thinks the market is and considers himself to be among the last value investors left in a "broken market," comparing himself to the Maytag repairman at Delivering Alpha and revealing a bet on a beaten-up agricultural stock that he thinks is among the only bargains left in the market.
Trian Partners CEO and billionaire investor Nelson Peltz said at Delivering Alpha that while he is happy Trump won and viewed a potential Harris administration as a disaster, the rally can't last and extreme concentration in the market among a top-heavy group of high-momentum stocks is a factor. "You've got two different markets. … You've got these 20 companies that are swinging the cat around the room. And then you've got these other companies," he said.
While bond yields have been under unexpected pressure in a Fed rate-cutting environment, Einhorn said the bond market has not yet begun to price in what will be a "difficult Treasury [bond yield] situation," as a result of his concerns including expansionary economic policy under Trump.
This specific concern was cited at Delivering Alpha by Anne Walsh, Guggenheim Partners Investment Management chief investment officer, who expects bond yields to remain under pressure and the bond market to experience higher volatility than stocks for as long as a few years due to concerns about tax cuts and deficit spending, among other factors.
