REUTERS/Mike Segar
- David Einhorn is betting on inflation to remain elevated for years to come.
- The Greenlight Capital boss anticipates higher prices for copper, paper, cement, and air cargo.
- Not all suppliers can immediately ramp up production to meet demand, Einhorn said.
- See more stories on Insider's business page.
Billionaire investor David Einhorn predicted inflation is here to stay, and explained why rising prices will benefit his stock portfolio, in his second-quarter letter to investors this week.
"There are too many dollars chasing too few goods and services," the Greenlight Capital founder and president said in the letter, published by ValueWalk. "We have reached a structural change in inflation."
Einhorn drew a distinction between temporary bottlenecks that have spiked the prices of lumber and other goods during the pandemic, and lasting shortages fueled by broader trends such as the electric-vehicle boom and years of insufficient house-building.
The hedge-fund manager added that it's impossible to rapidly boost the supply of some products, so their prices will have to rise to dampen demand.
Einhorn noted that investors have plowed their cash into high-flying technology companies, starving traditional businesses such as mills and miners of capital. As a result, the latter group have underinvested in their facilities for years, and now lack the money to ramp up production as the economy reopens. They will have to hike their prices to generate bigger profits and attract investors, Einhorn said.
The Greenlight chief also argued that if bosses raise wages to lure back employees, and the Federal Reserve continues "tinkering" with its expansionary policies instead of aggressively addressing inflation, that would be a recipe for higher prices.
Einhorn clearly expects the current surge in inflation to persist, but he assured his investors that Greenlight's stock portfolio will benefit if he's right. He pointed to Green Brick Partners, a homebuilder and his fund's largest investment, which is likely to benefit from rising house prices. His other holdings function as bets on higher prices for air cargo, copper, cement, paper, thermal coal, and natural gas, he added.