Greenlight Re 1Q15 Earnings Call Notes

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(Einhorn not on call)

Investment portfolio down 1.8% in 1Q

“Thanks Bart and good morning everyone. Greenlight Reinvestment portfolio was down 1.8% in the first quarter. At longs, led by Apple and SunEdison, outperform the market. Our shorts went against us by more than our longs gained and macro positions were slightly negative.”

New longs in AerCap, Chicago Bridge and Iron and General Motors

“We established a few new long positions in the quarter including AerCap, an Airline leasing company. Chicago Bridge and Iron, an energy — an engineering and construction firm that is down quite a bit along with the price of oil that has a significant multiyear backlog and we reestablished a position in General Motors. All three companies traded about eight times this year’s expected earnings.”

Only 16% Net exposure thanks to stretched valuations

“We also added several new shorts including shale oil frackers and increased our short exposure from 67% at December 31 to 88% as of March 31st. The investment portfolio’s net exposure was 16% at quarter end which is near an all-time low and reflects our concern about stretched valuations and challenges we see for corporate earnings in 2015. These challenges include the strong dollar, lower oil prices and difficult year-over-year comparisons in the next three quarters.”

Labor costs rising

“Another issue that has worried us and is less discussed is the commodity bust and its impact on peak margins. Labor hours are growing faster than GDP. Companies like Walmart and McDonalds are raising wages suggesting that the low end of labor market is tight.”

Earnings may shrink this year

“These issues lead us to believe that earnings have peaked and may even shrink this year. We are proceeding with caution and that also we aim to generate from the mix of long and shorts drive our results. Our current thinking is that 2015 is setting up to be a challenging environment and we are positioned accordingly.”