The Shame of U.S. Government Shutdown

By: Bloomberg

Hedge Fund Manager, David Einhorn sat down with Bloomberg Television's Erik Schatzker and Stephanie Ruhle today and discussed the government shutdown, Green Mountain Coffee and Verizon/Vodafone deal.

Einhorn said it is unimaginable for U.S. to default, "Frankly not working this out so the government shuts down is bad enough...It does not seem that they tried to sit down to talk through their differences. That is the tone in Washington. It's a real shame."

Einhorn was joined by Robin Hood Foundation's David Saltzman to discuss next month's Robin Hood conference featuring Dan Loeb, Bill Ackman, David Tepper, Paul Tudor Jones and David Einhorn.

Einhorn on the shutdown and what it means for the world economy:

"I think that almost everybody just wants there to be a deal. We have a divided government. There is a reason why we have a divided government. You have a president and two branches of the legislature and the American people want a divided government. When you have a divided government that means they are supposed to negotiate with each other horse-trade and come to a deal and the thing that is particularly depressing to me about the current situation it does not even seem like they locked themselves in a room and did their best to find a middle ground. They just kind of take the point of view and say, 'Hey, we are not negotiating with the other guy.' I think it is embarrassing to all of them."

On whether the government will do the right think after every option has been exhausted:

"It is unimaginable that we will go through the deadline and they will default on the debt. Frankly, not working this out so the government shuts down is really bad enough. Particularly because It does not seem that they tried to sit down to go through differences. That is the tone in Washington. It is a real shame."

On whether he is still short Green Mountain Coffee:

"Yes. We are still short Green Mountain. It has been on the toughest things going on in our portfolio this year. The books are over caffeinated, if you would. The company says that they sell a lot of coffee, there is no doubt they sell a lot of coffee. We do not think they sell anywhere near as much as they say and there are real discrepancies in the accounts. They had an analyst day a few weeks ago and they were asked to explain the numbers, and the CEO's cavalier response was they do not do straight math and they are not going to get into this now. If you do not get into this on an investor call, when are you going to?"

"There is a lot of ways for Green Mountain to pan out for us. This year, so far it has not been panning out for us. The competition has been increasing; they are losing market shares in their stores. Their platform has been commoditized. Anybody can make a cakeup. The Supply is now out there. The prices are falling. I think they will miss on the business side form an earnings perspective sometime over the next year. Ultimately they will be commoditized away. In addition, you have the regulatory risk when someone wakes up one day and says these numbers are not what they are represented to be."

On being big on Vodafone the last three years:

"When we bought it you were getting no credit for their stake in Verizon Wireless now we see that was a very valuable stake. I think $130 billion. I think Vodafone remains pretty attractive because one you strip out the consideration for Verizon, the rest of the European business is at a pretty cheap value."

On whether there are opportunities in the U.S. for Vodafone:

"No, I think Vodafone exits from the U.S. if anything it could ultimately be a target for someone like AT&T that wants to get exposure into Europe"

On whether Vodafone could have held on to Verizon Wireless longer:

"I would give Vodafone an A or an A plus on this negotiation. Verizon took a very aggressive tact with them for a lot of years saying, you are a minority; we are not going to pay you dividends and eventually Verizon needed a dividend so they started paying it but sporadically. They really tried to squeak these guys out. They finally came in the spring. It turned out they could not bridge the great act. Vodafone held out. Verizon came back to the table. They paid a higher price than I think they even would have paid in the spring... Vodafone is not mostly a wireline business. They are mostly cellular in Europe. So you have that wireless component there. When you strip out the Verizon Wireless valuation, you are buying it at two turns of EBITA less than comparable companies. I think it has better prospects better growth and better network than many of its peers."

bloomberg.com

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