By Svea Herbst-Bayliss
NEW YORK (Reuters) - Hedge fund manager David Einhorn, whose Greenlight Capital gained 27.7% in the first nine months of 2023, said he is "worried about the direction of the market", bracing for higher oil prices and ready to buy beaten-down stocks.
Einhorn's views on markets and specific stocks are widely watched for clues about investment trends.
"Current extreme levels of geopolitical tension will lead to lower stock prices over a time frame that lasts more than a couple of hours," Einhorn and his team wrote to investors on Wednesday in a letter seen by Reuters.
Reporting some of his best returns in years, Einhorn said Greenlight's funds gained 12.9% during the third quarter when the S&P 500 index lost 3.3%. The quarter's biggest winners in Greenlight's funds were CONSOL Energy, fashion holding company Capri Holdings, software, data and analytics company Black Knight and an undisclosed macroeconomic bet on declining stock prices and higher long-term interest rates, the letter said.
Looking ahead, Einhorn said he was being cautious at a time of war and the looming specter of recession.
"We are effectively on a 'buyers strike' again and did not establish any material long positions," the letter said, referring to the fact the firm was cautious in making big new investments.
The letter added that "It's a tricky time and we remain worried about the direction of the market."
The fund sold Capri Holdings, which was bought by Tapestry in August, and said it cut its exposure to U.S. consumers amid worries that spending could contract if prices keep rising in the wake of higher oil prices.
"Higher oil prices would squeeze the consumer and likely cause a recession," the letter said.
Einhorn and his team said other investors are underestimating the impact of geopolitical tensions. He expects them to have a more durable effect and push stock prices lower "for more than a few hours." At some point, he said, he will be ready to buy beaten-down stocks and some "truly distressed debt."
(Reporting by Svea Herbst-Bayliss; Editing by Rod Nickel)