market folly

Greenlight Capital's David Einhorn recently spoke at The Economist's Buttonwood Gathering and gave his thoughts on the Federal Reserve's policies and their effects.  Einhorn said that,

"The assumption is that if we want the economy to improve, if we want more jobs, if we want more consumption, what we need are ever easing monetary policy ... 1 jelly donut is a fine thing to have, 35 jelly donuts is not a fine thing to have.  It gets to a point where it's not a question of a diminishing return, but it actually turns out to be a drag ... we're past the point where incremental easing of the Federal policy actually acts as a headwind for the economy and it's actually slowing down our recovery.

Einhorn drilled down the effect of low interest rates on consumers in particular, stating:  "Lower rates drive up the costs of commodities."  He says it doesn't help and it takes income out of people's pockets that they could normally spend otherwise.

Additionally, he says that not being able to earn a return on your savings means that people are now hoarding savings instead of spending because now those people feel they need more for retirement because they're not going to be able to earn as much from those savings.

In addition to Einhorn's talk, he's also expressed similar sentiment in a piece he wrote in the Huffington Post talking about the Fed's "Jelly Donut Policy."

Embedded below is David Einhorn's entire talk from The Buttonwood Gathering (fast forward to minute 56 for his portion):




For further hedge fund commentary from the same Buttonwood event, head to thoughts from Hugh Hendry.