Britannia Radio

Great News for Your Grandkids About Debt By Dr. Steve Sjuggerud Friday, May 28, 2010 "Good News for the Grandchildren" was the title of David Einhorn's speech on Wednesday at the Ira Sohn Conference in New York. I was there. "Are you worried that we are passing our debt on to future generations?"  Einhorn began… "Well you need not worry. Our generation – not our grandchildren's –  will have to deal with the consequences." Einhorn is worth listening to… Einhorn's investment success has made his hedge-fund customers wealthy. He's earned them more than 20% per year compounded, after fees. Einhorn famously revealed that Allied Capital was defrauding the government. He wrote a great book about his six-year battle with Allied, called Fooling Some of the People All of the Time. All value investors should read it. (He first publicly stated Allied was defrauding the government at the 2002 Ira Sohn Conference.) Einhorn also "almost made it to the final table" at the World Series of  Poker main event in 2006. He donated his $659,730 in winnings from that event to the Michael J. Fox foundation for Parkinson's Research. And then in the spring of 2008, Einhorn publicly predicted the death of  Lehman Brothers. So he's smart, a successful investor, and a good guy. He's worth paying attention to. Einhorn believes the U.S. could face a Greece-type debt situation much  sooner than anyone thinks (in our generation, not our grandkids').  He brought up civil servant pay as an example of a U.S. crisis in the making similar to Greece… Einhorn explained how in 2008, the average U.S. federal civilian salary with benefits was $119,982, compared to $59,909 for a non-government  worker. And when you have a government job, you can work for 20 years  and then retire, getting retirement pay the rest of your life (the next 40 years). Einhorn questioned the sustainability of those entitlements. Einhorn wasn't the only speaker at the conference… His hedge-fund-manager peers shared their favorite ideas as well. Most speakers at the conference held a similar view to David's. The optimistic take was essentially, "People are adaptive… We'll figure out how to adapt to these times, and make money out of them. There's never been a catastrophe that you can't see coming. If you can see it coming, then you can adapt." To invest in this difficult time, David said to own gold and gold stocks…  and worry about your grandchildren later. As he said, "When push comes to shove, there's a good chance the Fed will print money to the point where significant inflation shows up." Einhorn's favorite gold stock was African Barrick Gold – which I admit I am not that familiar with. It trades in London, at what Einhorn believes  is a significant discount to its gold-mining peers. If Einhorn says it's worth checking out, then check it out. Good investing, Steve P.S. Much of David's speech at the conference appeared as an op-ed in the New York Times.