VW HIT$ EINHORN TWICE By KAJA WHITEHOUSE October 31, 2008 -- As the world financial community surveys the damage from this week's Volkswagen short-selling debacle, it appears Greenlight Capital's David Einhorn may have gotten a double whammy. In addition to his hedge fund, Einhorn is also the brains behind a reinsurance company called Greenlight Capital Re, which sources say uses an investment strategy that mirrors his hedge fund's. The company doesn't reveal its short positions, and officials at the company declined to comment. But sources tell The Post that if Einhorn's hedge fund was hit by the VW trading fiasco, there's a good chance the reinsurance company was also exposed. Certainly, the company's shares suggest investor pessimism. The stock hit several fresh lows this week, with shares plunging as low as $10 a share on Wednesday before ticking higher again. Yesterday the stock closed at $12.10. On Tuesday, investors across the globe were hit by the squeeze of a lifetime when a widespread bet against Volkswagen's stock backfired. Instead of dropping, the stock soared, forcing hedge funds to scramble to cover their positions. Losses were estimated to be as high as $30 billion across an array of hedge funds and investment banks. It's rare for a reinsurance company to make such an aggressive bet, but Greenlight was launched in part to invest differently than the typical reinsurer.
If this is true, it is a perfect example of how being right (Lehman) is absolutely worthless if you can't properly manage your position sizes on your other trades.
Sweet. Less hedge funds means less efficient price discovery and more volatility. More volatility blows out most of wall streets black boxes. The golden days of discretionary trading ahead.
Yea, and efficient price discovery is taking place right now. That is why stocks are fluctuating 10,15, 20% daily between highs and lows. How do you figure that is efficient?
Uhm yea, maybe because the Greelight Reinsurance by defintion invests all premium written into the Greelight hedge fund?!?! What a dumb article. BTW: Einhorn was short VW and long Porsche (probably among many dozens of other positions) and he finished October -12.7%. Painful but far from a blowup.
But his point was that INEFFICIENT markets are good for traders. 10-20% daily fluctuations are sweet. If you are an investor, well, tough luck.
I think you better read the post from pssiedgoy again. Seems the point of his post (and I tend to agree somewhat) is that the fact the average mean revision based box strategy has been destroyed and blown up. Hence a lot of the black boxes that were all over the mkt in the last couple of years have essentially been shut down. The net result is a lot less liquidity at each price point and a lot less guys willing to step in and push back on rapid price moves. This of course results in wild price swings ie. volatility. With this kind of seemingly irrational moves in the mkt it is very difficult to just turn your box on it and let it run. Moves seem to come out of nowhere, the whipsaws are crazy , and follow through coming very unexpectedly. The only way to trade these kinds of moves without huge risk , or getting chopped to death, is to be highly discretionary, something machines can't do. Without all the automation running, and all the liquidity in the mkt, the price discovery system become much less 'efficient' with comparatively high levels of volatility.