Greenlight Capital Warns of Civil War, Tech Bubbles, and 13-Year Old Money Managers in Latest Letter

Greenlight Capital's latest quarterly letter to investors offered many vivid warnings to investors: Civil War, Tech Bubble, and a 13-year old money manager looking for a job.

Greenlight said the pandemic "has exposed and exacerbated deep-rooted inequities", leading to protest and looting. With police unable to keep some cities safe, protests have been met with armed opposition from vigilante militias. Violence and death have ensued. The fund highlighted a recent Rasmussen Reports that found 34% of likely voters believe a civil war is likely in the next 5 years.3 "While this is probably too pessimistic, it likely reflects a rising tail risk.," they said.

Further, the fund highlighted the dysfunction in governance and the 'collapse' of the political center. "The only common ground between the two parties seems to be money-printing," the fund states. Amid the over $3.3 trillion has been printed year-to-date, the firm concludes "we are now in the midst of an enormous tech bubble."

Greenlight said all the signs of a bubble are there, including:

• an IPO mania;
• extraordinary valuations and new metrics for valuation;
• a huge market concentration in a single sector and a few stocks;
• a second tier of stocks that most people haven’t heard of at S&P 500-type market capitalizations;
• the more fanciful and distant the narrative, it seems the better the stock performs;
• outperformance of companies suspected of fraud based on the consensus belief that there is no enforcement risk, without which crime pays;
• outsized reaction to economically irrelevant stock splits;
• increased participation of retail investors, who appear focused on the best-performing names;
• incredible trading volumes in speculative instruments like weekly call options and worthless common stock;and
• a parabolic ascent toward a top.

As an anecdote to some toppy behavior, Greenlight revealed it received a job application with the email subject, “I am young, but good at investments” from a 13-year- old who purports to have quadrupled his money since February.

The firm said what matters in a bubble is market psychology, not valuation. "Valuation is irrelevant". They said bubbles tend to topple under their own weight when everyone is in and the last short has covered and the last buyer has bought. "The decline starts and the psychology shifts from greed to complacency to worry to panic," the firm added.

The firm's working hypothesis, which they said might be disproven, is that September 2, 2020 was the top and the bubble has already popped.

Greenlight said it established medium-sized new long positions in SYNNEX Corporation (NYSE: SNX), ams AG (Switzerland: AMS) and NCR Corporation (NYSE: NCR).

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