David Einhorn Sells Fannie Mae, Bets On Commodities To Beat Biden Driven Inflation

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David Einhorn’s Greenlight Capital has made some big changes in Fannie Mae holdings. In his Q2 2021 letter to investors (full copy of Greenlight’s investor letter can be found here), Einhorn states:

During the quarter, we had a loss in the preferred stocks of Fannie Mae and Freddie Mac
(“GSE preferreds”). We had bought them in 2014, partially hedged by shorting common
stock. Our thesis was that we could do well if the companies were recapitalized and released
from conservatorship, and that shareholders had valuable claims against the U.S.
government, which had unilaterally changed the deal and essentially nationalized the
companies right as they were about to recover. We believed that under the Trump
administration, there was substantial interest in settling the lawsuits and releasing the
companies.
In January, the GSE preferreds fell when it became clear that the Trump administration had
left without putting the GSEs on a clear path to being released. Nevertheless, we remained
optimistic about the legal case, which had reached the U.S. Supreme Court. In the lower

courts, Democratic-appointed judges had tended to support the government and Republican-
appointed judges had tended to support the shareholders; so we were surprised in June when

the Supreme Court ruled in the government’s favor in all the important aspects of the case.
This caused the GSE preferreds to collapse. In the earlier years, the position had been quite
profitable and we reduced it at favorable prices. While we achieved a low double-digit IRR
over the life of the position, it was a loser in 2021.

David is also betting on some commodities, such as paperboard, cement, Copper, and thermal coal, Einhorn states:

We know what the President wants – if you are having trouble finding enough labor, “pay
them more.” Sounds like a wage inflation policy to us.
As for the Fed policy response, the market seems to think that by simply noticing inflation
and, perhaps, making modest changes to monetary policy, inflation will be brought under
control. But what if what’s needed isn’t merely tinkering? Reported inflation last month
annualized at a double-digit rate. What if the need is an immediate end of quantitative easing
and a rapid increase in rates? The so-called Taylor rule4

says the correct Fed funds rate today

would be about 5%.
We think the answer is, if that is what is needed, it won’t be done. Chairman Powell is
committed to remaining very accommodative for a long time and then only gradually
tightening. We believe he will find whatever excuse he needs to do so, no matter what the
data shows.
The result, we believe, is that inflation won’t be aggressively addressed. So, the risk is to the
upside. In our macro book, we hold inflation swaps and gold. The former will benefit from
reported inflation being higher than the market expects. The latter should benefit as the
market realizes the Fed is behind the curve and has no plans to catch up.