Portfolio manager Steve Eisman predicted the financial crisis of 2008 and was one of few that made money when the stock market crashed. The process inspired Michael Lewis’ book ”The Big Short”, which later became a successful Hollywood film.
Swedish journalist Katrine Marcal meets up with Steve Eisman in London to discuss worldwide issues and how they affect his current investments. The conversation revolves around politics, company analyses and the emotions of investing.
What does value investing really mean? Q1 2021 hedge fund letters, conferences and more Some investors might argue value investing means buying stocks trading at a discount to net asset value or book value. This is the sort of value investing Benjamin Graham pioneered in the early 1920s and 1930s. Other investors might argue value Read More
Among the controversial shorts in Eisman’s portfolio are a few British banks that could be hurt by a recession caused by Brexit. He is also shorting Tesla, a move that is offending owners of the American car.
Steve Eisman: Unequal Distribution Of Income, Stock Shorting Cult
When I talked to U.K. investors and I say you know it's possible that that Jeremy Corbyn could become prime minister. The media reaction that I've had is literally conversation reaction from someone was no way. And I said way and she said why. And I said because it's people who look like you talk like you and went to schools like you told me that Donald Trump couldn't be president. And in case you haven't noticed he's president. So I think it's possible. I mean I would probably that is that I don't know. But it's not small.
How invested I am than some good solid finances. Warts and stuff. And he's still we are simply happy Hollywood successful man. The Big Short. Oh no. I get Eiseman for kicks. Yeah.
Steve Eiseman, you famously saw the financial crisis coming and successfully bet against the American housing market. They even made a film about you and now you say the biggest story on planet earth is Brexit. Why?
So I think that the biggest story actually on planet Earth or at least the developed world for a very long time has been the unequal distribution of income in the developed world. And I actually think that is the sort of primordial cause of the financial crisis because. Rather than actually deal with that problem head on our political system decided you know let's let's democratize credit instead and democratize credit means giving loans to people who really shouldn't necessarily be getting loans. And that was the home equity crisis and everything in the developed world I think springs from that because every place in the developed world has the same unequal distribution of income. It's a terrible indictment of the establishment. And. That problem manifests itself differently in every country. But today it manifests itself in terms of populism. So Donald Trump as president I think largely because of that. Italy has ironically a dual populist government of the right and the left. How that happens. I don't know. But then again in Italy. And in the UK the story is Prexy and. I think it's the most interesting story on the planet right now because you know I've been to London several times.
And when you speak to people in the UK they have absolutely no idea what's going to happen in the most important issue that the country is facing a very very long time and one could argue that actually the political chaos in the UK is bigger than in Italy because more ministers have resigned from just from Theresa May's government than have resigned in Italy over the last decade. You know that I did not know how I could be told that. Yes. So you are also betting against a couple of British banks because of Brexit correct. Why.
Well one thing I've learned in life is that when there's something that could potentially happen that is so hard it is just so horrifying.
People tend to discount the probability of it. It's just human nature. And while you know the British market performed poorly last year. I don't think it price has priced in the possibility of Brexit. And or Jeremy Corbyn becoming prime minister.
And I think both could happen and happen this year and if they do that will be extremely negative for the UK market. So I've expressed that how to put this I've expressed it with a toehold. So I'm short three UK banks don't ask me which three because doesn't matter. I used to be two. I used to be two I added another one because I think the probability of Brexit happening is higher. So I added a third but the three are important because it could be any or any threat. And if any of these events happen I'll I'll probably do more.
So is it a hard Brexit or a no deal. Brexit is a particular threat to the UK financial system and these banks Well I mean I would think the UK banks will survive that much better capitalize than they were.
But the betting is that if if there is a hard Brexit there will be a recession in the UK which will be negative for credit quality which causes banks always to go down.
Many businesses here in London are more worried about a potential Jeremy Corbyn government than Brexit. Do you think that view is correct.
Well if you get a hard Brexit and then you get Jeremy Corbyn that be bad yes at least. And look I'm not I'm I'm not a citizen of the UK. It is not my role here to tell people what to do or how to vote. My only job is to predict what to try and predict what happens and try and predict what that does to the market.