David Einhorn Continues His Take Down of Fed Policy

It's David Einhorn versus the Fed.

Mr. Einhorn, the head of Greenlight Capital, is known for his contrarian views, but rarely have his foes been as powerful as the Federal Reserve. The hedge fund manager says the central bank's loose-money policy is hindering economic growth, an argument he expanded on during a conference in New York on Thursday.

“We would be way better off if we did pretty much the opposite of the current monetary policy,” Mr. Einhorn said, at the Buttonwood Gathering, hosted by The Economist magazine.

Policy leaders, he said, are engaged in a “reflexive groupthink” in support of the Fed's efforts. Although prominent economists have endorsed the Fed's policy, Mr. Einhorn said that his job as an investor was to “figure out how people actually behave.”

Mr. Einhorn insisted that the Fed, by keeping interest rates near zero, was hurting savers and therefore stifling spending and other economic activity. His argument on Thur sday echoed the critique of the Fed in Greenlight's latest quarterly letter, which compares recent central bank policy to American Express cards.

Mr. Einhorn has been building this argument for some time. In May, he said in a blog post on The Huffington Post that the Fed's easy money was like an excess of jelly doughnuts.

Ben S. Bernanke, the Fed chairman, tackled some of these arguments during a news conference last month, saying rising stock prices that come with quantitative easing tend to make people feel wealthier.

But on Thursday, Mr. Einhorn said Mr. Bernanke's argument took its own conclusion for granted: namely, that the Fed's policy promoted growth.

With the Fed pledging to continue on this track for the foreseeable future, Mr. Einhorn's firm has stuck with “a large allocation to gold,” according to the investor letter. Gold made a “material contribution” to the firm's performance in the quarter, the letter said.

Other hedge fu nd managers also took contrarian views as well in other sectors.

Hugh Hendry, who runs the London-based Eclectica Asset Management, offered bearish views on China and Japan when he spoke earlier in the day. Calling himself an “existentialist” and a “student of uncertainty,” Mr. Hendry said he was long gold and short the Standard & Poor's 500-stock index.

Others like John A. Paulson, also have a penchant for gold and and a tendency toward gloom. But Mr. Hendry takes it a step further. “I'm here to tell you that God is dead,” he said on Thursday, referring to the principles of Albert Camus. “I'm sorry about that.”

He suggested that the public nature of the conference was preventing him from speaking freely.

“Am I sitting here with video cameras saying the Chinese economy is going to contract 23 percent? Of course I'm not,” he said. “But if we have a coffee later, I might say something different.”