Another Billionaire Investor Moves Over to Gold

If you think you’re being accurate by labeling David Einhorn an investment-industry gadfly, you might as well be content to call Donald Trump “assertive.” There’s nothing politically correct or professionally cautious about this straight-talking forty-seven-year-old hedge fund manager who founded Greenlight Capital.

In 2002, Einhorn delivered a speech in which he recommended shorting the stock of Allied Capital, because he felt the financial company was engaging in deceptive lending practices. When Allied’s stock plunged, the company accused Einhorn of market manipulation; spurring investigations from both the SEC and then-New York Attorney General Eliot Spitzer. But Einhorn was vindicated in both inquiries when, in 2007, the SEC determined Allied Capital had broken securities laws.

In 2008, Einhorn was also vindicated for his negative remarks about Lehman Brothers’ accounting practices and his shorting of their stock. The financial giant’s bankruptcy ultimately became a triggering event of the Great Recession.

Now he’s turned his laser sights on gold and our increasingly chaotic financial world.  He’s claiming the central banks of the world don’t know what they’re doing, which is (don’t tell Einhorn) an increasingly mainstream position. This lack of reliability and expertise on the part of central banks means we’d be smart to think about alternatives.

In an interview with Bloomberg last week he said, “These increasingly aggressive and counterproductive monetary policies are bullish for gold.” Einhorn thinks Europe’s stimulus attempts amount to a last-ditch “kitchen-sink” policy, and that Japan’s going in the wrong direction with its negative interest rates. He also feels our Fed suffers from “data dependency,” and is blind to growing inflation, which he says is “now running above its two percent target.”

Gold represents one of Greenlight Capital’s current long positions.  As of last week, the company’s shares are up fifteen percent for the year. Let’s face it; in the contentious climate of investing and finance, it can take a contrarian like Einhorn to get it right.

As it turns out though, gold is now drawing supporters in more conventional quarters.

For example, Richard Mower, managing partner of Meridian Wealth Management in Denver, is also a big proponent of gold. Most certainly, the firm takes the long-term view on behalf of its retirement clientele and counsels them to invest carefully in stocks. But unlike many financial planning firms, Meridian recommends its clients maintain an appropriate portion of gold in their retirement accounts. The firm cites the unstable U.S. dollar as its reason for this recommendation:

“As noted in our Outlook 2016 publication, we have expected the dollar to stabilize after its big increase between mid-2014 and mid-2015. Since we issued that forecast in November 2015, as the market has pulled back some on expectations for Fed rate hikes this year, the dollar has moved modestly lower and supported gold even more than we had anticipated…”

So, yes, big contrarian investors like David Einhorn are moving over to gold.  But orthodox financial planning firms are also on board, including, tellingly, firms that focus on retirement investing.

This means all of us are faced with a choice.  Do we stick with the mix continually offered us by banks and brokerages for our IRAs and 401(k)s, basically paper and more paper, all tied to the same volatile markets and Fed-mismanaged dollar?  Or do we take a stand for our own self-preservation?  How much would you have given to know the financial collapse of 2008 was coming ahead of time?  Well the expert who did see it coming is now telling us our market-based investments are in danger and gold is the way to go.

As an over-fifty American who doesn’t have the time left to recover a gutted 401(k) after the next collapse, I intend to listen.