david einhorns greenlight capital was up 44 for the first quarter outperforming the sp 500s 46 return the funds management noted that a lot happened during the quarter culminating in an unexpected bout of violence is the fed doing what it takes in his firstquarter letter to investors einhorn says that he sees a decent risk that the 13year bull market and the longrunning period of relative peace and stability throughout the american sphere of influence since the end of world war ii are over he pointed to the oftrepeated sentiment that covid accelerated trends and changes already underway adding that he believes the same is true of the war einhorn notes that the war has accelerated inflation the ongoing supply chain issues and energy food materials and labor shortages and that stock prices had already started to fall as well he sees evidence that inflation is destroying demand slowing the economy in the process einhorn adds that if the federal reserve were serious about halting inflation it would be as aggressive and creative in tightening as it was when it was easing he also questions whether the fed is doing whatever it takes to deal with inflation or is merely talking tough emphasizing that he thinks the central bank is doing the latter greenlights long portfolio lost 7 during the first quarter but gains in its short book and index hedges almost totally offset that loss the fund reports that macro led by inflation swaps and gold generated a little more than all the return he segmented the funds long portfolio attribution into green brick partners which plunged sharply and contributed much more than all the loss and pretty much everything else which did quite well greenlights biggest winners were rheinmetall teck resources and consol energy russias invasion of ukraine sent rheinmetall soaring during the first quarter teck and consol both surged after sharp increases in metallurgical and thermal coal prices einhorn believes that even though there wasnt anything wrong with green bricks corporate performance its stock plunged from about 30 to around 20 during the first quarter analysts slashed their estimates for this year and next by about 2 although einhorn says that the problem was with the entire sector as most homebuilders plunged by similar percentages he explained that homebuilding stocks derated amid a new consensus view of a collapsing housing market analysts circulated the narrative that house prices have risen and noted that mortgage rates are rising theyre also saying that sales and housing starts are slowing and inventories and cancellations are rising david explains that this narrative supposedly implies a collapse in house prices leaving homebuilders in a precarious position he noted that everyone remembers when the last housing bubble popped and that the market appears to be suggesting that its about to happen again meaning the sector is now uninvestable at any valuation however the greenlight team disagrees with the new consensus view and einhorn describes the comparisons between todays housing market and that of 2006 as strained why greenlight thinks the market is wrong about homebuilding stocks overbuilding was widespread in 2006 with an average of 35 million existing homes for sale and the 30year mortgage rate averaged 64 homebuilders were also highly leveraged and homes were financed with very loose underwriting standards todays market comes amid a nationwide underinvestment in housing which has resulted in a shortage of about 2 million units only about 870000 existing homes are for sale and mortgage rates sit at around 5 underwriting standards are tight amid minimal speculation and low financial leverage among homebuilders in green bricks largest market existing homes for sale have declined 21 over the last year and are down 77 versus three years ago most of the indicators the bears are pointing to as evidence of a housing slowdown dont actually reflect a traditional slowdown instead he said they reflect the industrys inability to build houses due to factors like labor and material shortages which have lengthened construction times mortgage rates might at some point impact demand but for now homebuilders are constrained more by supply than demand further any slight decrease in demand probably wont pose a serious risk to earnings or balance sheets house prices arent the only prices that are rising as rents are up too additionally homebuilding stocks and home prices did well during the inflationary period in the midtolate 1970s greenlights short portfolio posted broadbased returns for the first quarter led by plunging prices in its basket of bubble stocks and a significant decline in the price of a medical device company that posted disappointing earnings results in midjanuary einhorn adjusted the funds positioning to reflect better his view of the weakening economy and the possibility of the end of the bull market the greenlight team added more index hedges and increased their macro positions in corporate credit default swaps and inflation swaps they focused their research efforts on short ideas so they didnt make any large additions to the funds long portfolio however they did add new small positions in international seaways ryanair holdings td synnex corporation southwestern energy and weatherford international greenlight also exited its long position in echostar during the first quarter after holding it for a year with a 22 investment rate of return fund management started to worry about the companys ability to grow its subscribers greenlight also dumped jack in the box after nearly two years with a 55 investment rate of return at the end of the first quarter the funds largest disclosed long positions were brighthouse financial change healthcare global payments  green brick partners and tech resources international seaways owns and operates oil tankers and product carriers the greenlight team noted that demand for oil tumbled during the pandemic resulting in an extended period of low charter rates for tankers the fund acquired its shares at less than 60 of the companys liquidation value greenlight expects a tighter market now that demand has recovered to prepandemic levels with no shipyard slots available for the construction of new tankers for several years amid the tighter market they expect international seaways discount to its net asset value to close ryanair is the largest lowprice airline in europe it expanded during the pandemic by upgrading and improving the fuel efficiency of its fleet and reducing its airport costs ryanair has secured a competitive advantage by hedging nearterm fuel prices so the hedge fund expects its earnings to beat expectations as demand for air travel continues to recover the greenlight team reinitiated a position in td synnex as they believe its recent merger with tech data has created the top global it distributor with the potential for a sizable accretion to earnings per share through cost and revenue synergies the firm held its first analyst day since the transaction closed and management laid out a path einhorns team expects to achieve 20 per share in earnings in the coming years southwestern energy is the secondlargest natural gas producer in the us and the greenlight team feels it is wellsituated to satisfy growing domestic and export demand they explained that europe now plans to cut back on its reliance on russian energy and depend more on ln g from the us with southwestern being a key beneficiary weatherford offers drilling tools and other products and services needed to produce oil and gas the company filed for bankruptcy in 2019 due to poor execution and a high debt load but the greenlight team believes it has emerged as a less levered better managed and cashflow generating business they expect weatherford to benefit from the many years of underinvestment in exploration and production which have resulted in severe oil shortages greenlight also expects the company to benefit from the significant increase in capital expenditures on exploration and production thats underway