The WSJ reports,"hedge-fund manager David Einhorn just joined the growing list of market watchers warning about a market bubble.
“There is a clear consensus that we are witnessing our second tech bubble in 15 years,” said Mr. Einhorn of Greenlight Capital Inc. “What is uncertain is how much further the bubble can expand, and what might pop it.”
He described the current bubble as “an echo of the previous tech bubble, but with fewer large capitalization stocks and much less public enthusiasm.”
There are three reasons he cited in an investor letter that back his thesis: the rejection of “conventional valuation methods,” short sellers being forced to cover positions and big first-day pops for newly minted public companies that “have done little more than use the right buzzwords and attract the right venture capital.”
Pricey stock valuations, record high levels of margin debt and a near record number of money-losing companies going public have made some investors nervous that the market has rallied far beyond what the fundamentals dictate.
Some of the market’s biggest momentum plays, such as biotech, Internet and social-media stocks, have been hit hard since early March amid concerns that they have gotten too pricey. Many of those names have recovered some of those losses over the past week and a half.
Without disclosing specific names, Mr. Einhorn said he has shorted a basket of so-called momentum stocks. He highlighted the risk of such a move: “We have repeatedly noted that it is dangerous to short stocks that have disconnected from traditional valuation methods,” Mr. Einhorn said. “After all, twice a silly price is not twice as silly; it’s still just silly.”
But now that there is “a clear consensus” that tech stocks are in a bubble, he said he is more comfortable shorting a basket of these high-flying stocks".
