An investment conversation with Steve Eisman

well good afternoon everybody and thank you for joining us today my name is mike deverel and i'm partner and investment manager at equilibrium and today i'm delighted to be joined by steve eisemann who is a senior portfolio manager at the iseman group part of nurburg berman and amongst other things steve runs what we would describe as an alternative equity fund it differs from a traditional equity fund that can only benefit from stocks going up because it can also benefit can bet on stocks to go down which we call going short and steve is well known for um back in 2007 2008 he spotted what was happening in the u.s housing market and the financial system as a whole and his story was featured in a book called the big short and that was subsequently turned into a fantastic hollywood film that i'm sure many of you have seen so today i want to ask steve all about his views on the markets and the financial system as a whole you know is it still vulnerable to financial crisis or is it much safer than it has been in the past and also on markets you know where are the opportunities what's he currently really positive on and is there anywhere particular that he's currently short and then later on we'll talk about what happened in the financial crisis and perhaps just touch on his portrayal in that film so we think the conversation will take somewhere around the region of half an hour certainly no more than 45 minutes and we want to hear from you so please could you hit the q a button on your screens at any time and we'll try and answer as many questions and put those questions to steve before the end of today's proceedings so steve is joining us today from new york so hopefully the technology will will hold up so good afternoon or rather good morning steve good morning good morning so just before we get into the financial stuff i'm just interested on what it's been like in new york over the past few months here in the uk we've been on lockdown since march we're certainly starting to see a few things reopen we've got a few uh shops getting back to opening again but bars and restaurants are still a way away and we're all still working from home so what's it currently like in new york what are you allowed to do what are you not allowed to do at the moment well the city really is just beginning to reopen uh if restaurants are not open most stores are not open we're still i would say largely in lockdown i think in a few weeks you'll see restaurants open where you can eat outside but the city is quite eerie right now in that it's largely empty and since the protests have started many of the stories in new york have been boarded up right interesting so you still uh i think you're still working from home what's it been like you know managing money from from home during this period well surprisingly if i had to pick a business that's least impacted by um the pandemic it would be money management you know i have in my home this two screens which is what i have in my office i have a computer i talk to people on the phone you know so instead of having meetings with physically we just have meetings on the phone other than that everything is more or less the same yeah that's you know it's interesting similar thing here actually we've all been you know working from home and it's gone surprisingly smoothly okay so uh before we talk about sort of any specific stocks or sectors i'm just interested to get your views on the market as a whole you know it's stock market has rebounded pretty strongly from those lows back in march and do you think that can continue and your fund can actually go both long or short the market are you currently long you're currently short do you you think it's going to go up right now we are about 65 net long maybe a little bit lower and that's about as long as we're allowed to be right um you know i would say there are in terms of fundamentals there are pockets of strength real real fundamental strength so for example you know i had a thesis i we've owned linolar for a long time and when the market bottomed i had a thesis which i basically went like this that when 9 11 happened i remember a whole bunch of people that i knew moved out of the city they just freaked out and i thought you know maybe you'll have something similar but it'll happen all over the country where people especially young people want to get out of the cities into the suburbs where there's more ability to social distance and jokingly i said one of my partners but we won't know that till the fall yeah but we know we're ready housing has rebounded enormously um orders as in june nationwide are up probably 20 to 30 percent year over year that's how strong uh new home sales are um so there are pockets of strength there are a couple of ways to play that we own um like i said lennar we had a reasonable stock called zillow um but outside of housing you know the economy i think is still very very weak so what explains the enormous rally is really the move by central banks to provide free money all over the world it's a free money it's a license to speculate and as long as that free money is around unless we get a a second wave you know i think people are going to continue to speculate well i was going to ask you about that because obviously that's partly because of quantitative easing and you know interest rates at rock bottom levels all around the world and that qe that quantitative easing is keeping those bond yields really really low as well so is it almost like there's basically no alternative but to go for the stock market if you get in search of returns i think it's part of it um i also think what we learned from the prior qes is that very little of quantitative easing actually finds its way into the real economy which is the mistake of qe um i think the fed has made the same mistake it made last time it should have been spending a lot more time working on these middle market lending programs which would have found their way into the real economy yeah you know why the fed decided two days ago to buy individual bonds individual corporate bonds when over one trillion dollars of corporate debt has been raised in the last three months i find bewildering but it's not up to me so i think that money is just gonna find its way into the stock market like it did last time so you know maybe they would have been better off doing kind of helicopter money and giving it to ordinary people it just finds its way to people's portfolios they have a program that's designed for that they just set up a program to lend to middle market companies that thing hasn't even been launched yet so why you're buying corporate bonds when you should be focusing your time on something that will have a real impact yeah like i said it's beyond me but it's also not up to me so i think this money is just going to find its way into the stock market let me just add one other thing there's a new phenomenon you know you know things happen and you don't realize the full implications of them until later so if your viewers might your clients might remember i don't know what the story is in the uk i don't think this is true in the uk but in the u.s it's at some time last year schwab announced that they were eliminating commissions yeah so if you wanted to trade through schwab it costs nothing now that was followed by all the brokers so we've got robin hood and delight and robin hood but everybody basically followed robin hood now what has happened is we've always had institutional day traders we've never had retail day traders of this size and now they number in the hundreds of thousands because you know you could make a trade in the morning free and you could sell it in the afternoon free and so i think that has contributed enormously to the volatility as people and also apparently i read i read that um a lot of these day traders normally would bet on sports but since there's no sports they're literally treating the uh the stock market like it's a sporting event well we've seen a huge great big rally in the stock price of hertz which has essentially just gone bust um and so it hasn't it hasn't just gone bust it went bust yeah which normally means that the equity is worthless yeah that's how it works instead the stock went up 300 percent they raised equity i mean it's crazy well that's what's going to ask so you know is it is it crazy so uh if you're a let's say you're rather than a retail investor but you're a fundamental investor and you're looking at the stock price you know normally you'd be looking at what a company's earnings its profits would be today what they might be in 12 months time but we know that in 12 months time for a vast majority of companies their profits are probably going to be lower over the next 12 months than they were a year a year ago for example so everybody's looking kind of two three years out and obviously the longer you go out there even you know it's even harder to forecast so do you think it's a real risk of a bit of that kind of exuberance that that kind of bubbles might be being blown in a way i i do think we have a chance for this to look a little i don't know if you remember you know in 1999 um you had what what i call the market that became bubblicious yeah and the reason that happened was in 1998 you had the long-term capital crisis and the fed cut rates i forget how much they cut rates they cut them to one percent which back then was zero considered to be so one used zero is the new normal one used to be zero and that gave people the license to speculate on everything we had the internet bubble etcetera etcetera and then eventually the fed raised rates and killed it um but since the fed has basically said they're not going to raise rates of only like 2022 or 2023 um you know the licenses speculated they may run rampant we'll have to see i mean i think the only thing that could break this as of now would be a real resurgence in the pandemic yeah and or um uh joe biden becomes president and both houses of congress go democratic and therefore tax rates that question would go up yeah just on that just one other thing we hear anecdotally is fund managers generally and investors as a whole a lot of them still have a lot of cash in portfolios they've got cash on the sidelines and a lot of people kind of missed the market rally so could that kind of are there a lot of people out there in your opinion sort of just waiting to buy the dip and and and couldn't constrain anything they're waiting to buy the dip and then unfortunately when the dip happens they don't buy because things are so precarious i mean let's let's all admit things are very precarious none of us have had any experience with with a pandemic there's nothing to analogize it to so it makes in some ways difficult to jump in especially when you start to see resurgences going around yeah absolutely no okay well let's let's talk about the financial system as a whole because back in those lows in march a lot of people were were quite worried and it felt like a number of indicators of the financial stress had reached kind of similar to 2008 kind of levels a lot of people said that you know certainly liquidity in the markets had dried up so how resilient do you think the financial and the the banking system is today you know is there a chance that something like this pandemic could trigger another financial crisis or is it a bit more resilient so let's separate banks from the fixed income markets and let's go back to 2008. so in 2008 the banks failed and the bond markets failed and the system came in and bill basically bailed out the banks by giving them a massive infusion of capital and bailed out the bond market by guaranteeing money market funds etcetera etcetera etcetera um this time around i'll just focus first on the united states and we can talk about europe in a minute um in the united states over over that period of time since the financial crisis the banks have delivered enormously so citigroup used to be leveraged for example 33-1 and as of the um just before the pandemic they were leveraged twelve to one which you know in my world i mean for your clients that that may not mean a lot obviously 12 is less than 33 um but in my world that's like the distance from mercury to pluto yeah you know so i i i have said publicly many times that i thought the financial system the financial system in terms of the banks was safe yeah and you know for example when the pandemic started one of the worries was that people would companies would pull their lines and the question is would the banks have enough liquidity to fulfill those commitments yeah and you know not only are the banks much less levered they're probably 10 times more liquid yes so all these companies pulled their lines and the banks wrote checks like it was it was nothing i mean it had no impact on the banks at all so i i would say that the banks have come through this superb right um i can't say the same thing for the bond markets yes um so as i like to say you know and if we compare today versus the financial crisis the banks are one for two and the bond markets are over two and and not only are they over two it was worse this time because even during the financial crisis you could always trade treasuries yeah and try it prior to this the fed stepping in um around march 23rd 24th to 25th um you couldn't even trade treasuries it was that bad so u.s government government bonds some of the most liquid assets you'd imagine in the world the only thing in us government bonds is maybe the dollar currency yeah cash yeah right so i think major reforms are going to have to take place in the bond markets once um once the you know the coast is clear that that discussion hasn't even begun yet um but i wouldn't worry about it right now because the fed is providing massive liquidity at the bond markets the bond markets are functioning fine yeah so is that a systemic issue though could that then have a knock-on effect to anything else well i mean the issue is longer term will what the fed has done eventually cause inflation yeah and at least in the near term the answer to that question is definitively no um and a lesson from the financial crisis um you know when the fed did qe and all its other stuff in 2009 10 11 and 12 there were a whole bunch of critics who said this is massively inflationary yeah and it turned out not to be and why and the answer is when the fed does qe like they're doing now what they do is they go out and buy bonds and they basically go out and buy bonds from banks and now banks have all this cash and the fed has the bonds at this point it's not inflationary because the banks are literally still holding the cash they're just hoarding it and keeping it to to sort of buff up strength well they'd like to they would they they would lend it and that's when it would become inflationary but if there's no loan demand it can't be inflationary so you know during post-financial crisis um there was very little loan demand so yes the banks had all this cash but they just sat on it in fact they gave it back to the fed in terms of reserves so could that be different this time then do you think well i think it would be inflationary only if and when the economy really starts to pick up and that money starts to find its way to the system which obviously is not the problem that we're facing right now yeah so you mentioned u.s banks being much much stronger but i think you alluded to perhaps it being a different case um overseas yes i mean i look i think with the exception of the nordic banks and a few maybe maybe maybe of the british banks um the banks in europe are still impaired they're not they're they're less leverage than they were but there's still a lot more leverage than u.s banks um i could probably talk about this for the next two hours literally i mean literally pass out into a coma yeah so just take it from me the european banks they're better they're not as good as the us banks and you know that because uh what you've experienced is what's called regulatory forbearance in europe meaning i won't go into the details but there are certain things that the banks were supposed to do this year and next year and the regulators said hey forget about it yeah or as you sometimes say in in new york forget about it absolutely and there's been no regulatory forbearance in the united states okay fair enough so um you know we talked a little bit about some of the the bubbles we might have seen in in the financial system previously so you're not uh are you worried that there are bubbles appearing in in some parts of it obviously we talked about the bond market but that was more about liquidity i think than government markets aren't i mean the bond markets aren't bubble they're being supported by fed liquidity um so if the economy improves that'll be okay you know if the stock market goes a lot more then i think there's going to be a bubble start to form in in equities but we're not quite there yet so are there any specific sectors though that you would avoid that you're um going short within your funds that are betting that might go down i don't have any sector i mean the one sector that i have a little bit of what i call a sort of a short exposure in terms of the sector would be i have a bunch of shorts and consumers staples because i'm sure you remember during the pandemic you know basically everybody said i'll go out and buy soup yeah or i'll go out and buy toilet paper i'll go out and buy bleach you know i mean i'm gonna have to tell you your your customers you know exactly what i'm talking about yeah i mean i remember one day in new york i went my wife says go out and get we need some paper towels so i said okay so i go to the supermarket and i buy you know like one of these huge packs of paper towels and i put it on the the register and the cash register system you do realize this is this is costing you 38 dollars and i go three dollars oh my god what was i gonna do i bought the 38 worth of paper towels but um so i think there's a little bit of uh those stocks are overvalued so they they've had a short term boost to profits but it's not necessarily going to last it's not look we're not going to be paying 38 dollars for paper towels i hope not we do but what does it mean really to to go short to stock so i think some people makes them feel a little bit uncomfortable this idea of shorting it does i mean i often get a question what does it take to be able to short stocks because you're profiting from failure right if a company fails then you benefit or people fail it doesn't have to fail it could do less well yeah um but regardless you're rooting for the stock to go down and not everybody is set up emotionally to do that there's a wonderful german word called schadenfreude which it tells you a lot about german versus english because in english there is no there is no word that translates exactly for shot and foreign but what it means is reveling in the misery of others yeah to be able to short stocks and you got to have a little shot employed in you yeah though fair enough okay so what about some of the areas that um that you are a bit more positive on nick so looking at your fund some of the uh the top holdings are some of the big tech names you've got microsoft apple amazon i think technology is probably your biggest long position in the funds certainly was when i last looked but those stocks of course grown amazingly quickly you know can that really continue uh are they maybe starting to look a bit expensive can you know you know you know can that go on i i think the idea of and this will be completely honest the the um what does it mean for a stock to be expensive in a world where rates are zero is believe me not an easy question to answer um so my view is you know for the apples and the amazons and the microsoft of the world you know in an age of disruption you've got to have at least a certain percentage of your portfolio in those stocks now you don't have to own the crazy high flyers because those things are so volatile i mean you might want it i mean i owned one which is zillow which would be i used to be short and i covered it during the pandemic and then a couple of weeks later i turned around and bought it yeah and the reason why i bought it was what i was hearing was housing was really picking up and since people don't want um so many people traipsing through their house to buy their house they would use the internet a lot more and so i bought zillow for that so zillow's like an online to say estate agent a real estate agent correct that's exactly i'm sure i forget the name in the uk you have you have that as well yeah yeah purple bricks is one of the big ones here for example yeah same thing this is zillow is the biggest in the united states so do you think the kind of the low bond mar bond yields and qe then are a real support for those big growth stocks is that is that one of the reasons to think that you know that there's still decent value even you know even at these kind of levels yes i mean i i think that if the economy were to pick up let's fast forward a year two years whatever it is if the economy really picks up and the fed then starts to raise rates you're going to have to be a lot more careful in terms of your growth stock selection because what's going to happen is the discount rate is going to go up and the the people maybe be more susceptible to selling those stocks and buying cyclicals and at that time yeah you want to bet more on cyclical stocks that might benefit from an economic recovery i suppose correct yeah so just on the technology theme there was one uh a kind of a tech company really that you were short until recently or fairly recently i think which is uh which is tesla so i understood i remember reading an interview with you and you said that it's kind of more like a cult than a company and it's very very hard hard to go short a cult right what did you mean by that and yeah why were you short in the first place and why did you change your mind well i was short in the first place because i felt that it would be difficult for various reasons for the company to grow up to expectations um in terms of sales i was wrong in terms of profitability i think i'll probably turn out to be right but given the fact that nobody seems to care about the profitability of the company he doesn't care about what the sales are you know you you you're in a game where you're playing baseball and everybody's playing playing skeet ball and and you're you're concerned about you know x y and z and the other team doesn't care about x y and z at all and in a world where rates are zero and everybody can speculate to their hearts content for that type of stock it's best to get out of the way yeah yeah and so i got out of it months many months ago yeah um actually in a one of the future one of these events we've got one of the fund managers from bayley gifford who are i think the second largest holder in tesla so i mean you know they backed it from i think right near the beginning but if you were uh hosting that event are there any particular questions you would uh you would ask them yeah i would ask them how they see the ultimate profitability of the company um how do they model that how they think about it because you know i think at this point you know i mean you could say whatever you want obviously because nobody cares uh but i'd be curious as to what they have to say about how much how much in depth they've really thought about it yeah sort of betting on uh it's either i think it's a lot of it's whether or not you back elon musk or not isn't it right whether he's uh his genius outweighs his uh kind of i didn't want to say it but uh you can so at that point that's been fantastic so far i think it would be good to take a just a quick break and i'll bring in uh my colleague ben rodgers and we'll see if we've had any audience questions on and anything we've discussed so far and then after we've we've talked about that perhaps we'll then touch on the uh the financial crisis and the big short so then hopefully you're there hello hi thank you for that steve and mike that was uh really interesting um we've had a few questions come in um anyone for our viewers if you are watching uh just remember there's a q a button at the bottom so if you'd like to send in your questions you can do so by that i am reliably informed that if you're using an ipad it's actually at the top of the screen if anyone is looking for it um steve uh you mentioned a little bit there about the regular forbearance in uh in banking and and i suppose i've seen some previous interviews where you've mentioned about the importance of you know the regulation in financial services uh also i suppose going back to the finance crisis and the role the regulators played or didn't for that matter in in the lead up um what do you feel the impact of president trump has been on regulation in u.s banks uh so far and i suppose also what impact do you think he may have in the future if these re-elected in november it's a very good question on the margin the regulatory environment for banks since president trump was elected has been somewhat more pro-bank so you know going back to citigroup again um you know the company pre-crisis was levered 33-1 on the day that president trump got elected it was leveraged ten to one and right now it's leveraged twelve to one so two turns more leverage um now i would say that that you know it's a little bit more benign you know but 12 is a hell of a still a lot less than 33. so on the margin more helpful you know they loosened up the vocal rule a little bit but it's still pretty tough so does that mean that you know the future sort of returns for banks will still be pretty low maybe much more like it you know in some ways you know they're not the casino banks that they once were they're not even close yeah i mean i mean the formula for banks which applies to all companies but it just makes a lot more sense for banks is return on equity equals return on assets times leverage so when citigroup was leveraged 33 to 1 it had about a 1.2 roa return on asset so it's roe 33 times 1.2 is like 35ish percent now when you got down to 10 times levered the roa was only 80 basis points and so the roe was only 8 which is terrible yeah you know today as as as the companies have leveraged a little bit more and taxes have gone had taxes have gone down you know they are always like 11 12 percent which is respectable it's just not anywhere close to what it was yeah thankfully we don't we don't want to go back to 35 no but as leverage goes down obviously that reduces risk but it also reduces your future return as well correct yeah ben are there any others at this stage yeah so we've had one from uh this is from uh a nesbitt um who's here today and it's they're getting a flurry of questions so it's moving around the place uh obviously i'm going to paraphrase slightly um prior to obviously covid and lockdown uh the big question i suppose for and the big uncertainty for investment managers was around the u.s china trade tensions uh separate to brexit which was perhaps more uk focused and european focus um how do you how do you feel so do you hold any sort of chinese exposure within your the fondant and how do you feel it will go between the us and china the great question i mean i have two positions that have that are well i own alibaba that's the only china name i have and i also own las vegas sands under a theory that macau will reopen but that's it i think we are regardless of who becomes president whether it's president trump or president biden um i think we are in a cold war with china of one form or another for the duration i think it has massive long-term implications for industrial companies and consumer discretionary companies that have their supply chains in china i think where a lot of that's going to be moving either back here or somewhere nearer here and the pandemic's going to accelerate that because people want shorter supply chains okay yeah that's very interesting uh what i'll do i think we'll come back to audience questions in a minute because i know we need to sort of finish uh by about quarter two so i i do want to just just ask you before we come back to audience questions just a little bit about the financial crisis and and about the big short so you know firstly you know i suppose i will just ask you briefly how did you kind of see what was happening in the housing market and the mortgage securities related market um because and also then you know reportedly you made uh when it paid off if you like your your bet on against those securities you reportedly made around 750 million dollars for the fund in that you know pretty much overnight from those short positions you know how did that feel and and how worried were you in the run-up to it you know what that it might not pay off um let's see i mean there were two things that happened in 2006 that made me pretty as convinced as i could be that something bad was going to happen the only question was how bad so the first take took place i think like in the first week of may when a savings and loan the largest savings alone in the united states called gold and west sold to wachovia and that's told me a lot because golden west was founded by a married couple called herbermarian sandler who i actually knew personally they were the best mortgage underwriters in the united states company had been in existence since the mid 60s they'd been through many many ups and downs in terms of mortgages in california was largely a california company and the fact that they were selling told me it's over that was the first thing and the second thing was just that and you know securitization data can be very illuminating and it also comes out monthly and what you began to see in the summer of 2006 was that the loans that were securitized in early 2006 were showing very high levels of defaults very early much higher than than prior securitizations and so that just told me it was only a matter of time for the thing probably to blow up the question was that just how long it was going to take yeah so obviously you put in a big position to bet against it as i said it made a a big profit for the fund overnight but obviously that meant you were taking it a big risk uh with with with the fund so i mean how did that how was that making you feel at least i actually didn't think of it as that big risk because when i started putting on the positions they were priced i thought very very cheaply so the way this works is if you want to buy what's called a credit default swap on a tranche of subprime mortgages it's like buying insurance and so you pay a premium to the entity that you're doing the trade with so let's say it's goldman yeah so i was paying on very what i'd call risky tranches only three percent of the principle so and i was and that was going to be a five-year piece of paper so i didn't feel like i had a lot of risk at that point because it was priced so cheaply because people didn't seem to recognize what was coming so you know yes the size of the position was big but what it actually cost me to put on the position was actually very low yeah so like an insurance contract obviously if it hadn't paid off all you lose is your your premiums correct so i always knew that all i could do was was my premium which which i could always afford to pay yeah interested so how did it feel that time when it when it when you realized it had worked because obviously you know i think it says i haven't read the book this was kind of uh shortly before that you'd realize that actually this was a quite a big systemic problem and it wasn't just uh you know it was going to have a big impact to the to the us and the world economy and the financial system so you kind of on the one hand perhaps the latest that your your trade is paid off on the other hand you know the world is falling apart if you like so i would separate out between 2007 and 2008 2007 was the year that i made a lot of money on the subprime paper um i made that against the goldman sachses and the deutsche banks of the world that felt pretty good do you profit at that profit at their expense aren't you if you make a dollar somebody loses a dollar that's just how this works so by i felt pretty good making a lot of money against them you know 2008 wasn't fun because 2008 was i felt like knowing the ark you know i'm noah i have an ark my family is safe in the ark and everybody's screaming outside believe me noah is not happy that people are screaming outside yeah that's a great analogy i love that just coming on to the big short so i i always think it's a pretty brave move to turn a financial book albeit a brilliantly written financial book into a film but it worked pretty well what did you think when you originally heard there was going to be a film and is it true that it was brad pitt who was originally meant to play the character based on ye so the story was i got a call so when the book came out in 2010 the rights of the book were bought immediately by brad pitt's production company and then nothing happened and then um in i'd say in the late fall of 2014 michael lewis called me to say that i was going to get a call from somebody named adam mckay who had done directed comedy up until this point and um adam mckay had rewritten the script and they loved it and he was gonna direct and he you'll get a phone call and i'm like yeah yeah sure okay nice talking to you michael i thought it was nonsense then i sure enough like a day or two later adam mckay called me and he said that all that all what i just said and then he said and i want you to know there's a possibility here that brad pitt's gonna play you because that's what everybody wants don't that is brad pitt he couldn't do it so steve carell who did a great job he did so how faithful was the book to what actually happened and then obviously the film is a bit more of an adaptation and actually the character based on you obviously uh you asked for the the name to be changed i think in the film why was that it's a personal reason it's not important i was just happy to have the name changed yeah fair enough but i i like to call it plausible deniability fair enough but i would say i mean there was some changes made in the movie for um for poetic license like i'm if you might remember from the movie uh steve carell has a brother who died committed suicide that's like kind of like a back story i never had a brother i have a sister she's perfectly healthy and she always likes to say not only did they kill me but they i wasn't even a girl fantastic no that's really good that's really interesting to hear thank you for that so um i think we'll just go back to uh to ben and let's see if we've had any more i think we've had a few more questions from the audience so let's see how many we can get through in the next sort of five to seven minutes or so yeah thanks again for that steve uh and mike really really interesting stuff we we have had a uh floor of more questions uh we will try and get through as many as we can uh we have to uh i i i can go to the 11 it's fine go ahead to the hour excellent um so so the next next question came from uh from from um looks like ronnie uh so going down the you know doomsday scenario um could could this be a repeat uh or could could a number of repeats of this pandemic uh by which i think he means second or maybe even third waves cause a uh 1929 style depression rather than just a recession you know it's only 10 40 in the morning here in the united states it's a little depressing for this early in the day i mean sure it's possible um you know i would say from a medical perspective it's unlikely um i'm no doctor i'm no scientist but what i've read is that um you know the doctors are getting better at treating it um so i think you would have to have you know for you know a recurrence and the massive mutation that made things a lot worse which at this point you know there's no reason to think that's going to happen that a second wave could happen obviously that's possible but we're still in the first wave we're not in the second wave yeah so you're not you're not looking at planning planning ahead and going my grandfather would have said don't pray for bad times they'll come anyway yeah [Laughter] although steve you did tell me earlier you've moved out the city and you're now at long island so is that kind of the theory of starting well it's not look there's we're not going back you know like i said the asset management business can function quite well with people working at home so there's no point in me being in the city when i can be on long island you know at least i can play a little golf and the market closes yeah absolutely um next question came from uh from norman um which is a great question actually uh so looking at your top holdings of you know that we mentioned that you mentioned them earlier the microsoft amazons and apples um i suppose the the only other one to mention there would be google to the fourth to get to the trillion trillion dollar club i suppose stepping aside from the valuations uh are there any concerns that the influence of these i suppose mega cap uh companies becoming too great and uh what are you oh absolutely um yeah that's a great question um so i used to be a lawyer you know like in a previous life but i have kept up on antitrust you know i i would say in a trump administration you may get antitrust investigations but they'll be for show and a biden administration i think you run a much bigger risk of real antitrust clampdown on some of these companies i would say not apple but i'd say amazon facebook google those three yes so you might have to rethink those positions and obvious administration and i suppose um similar to the you mentioned earlier about uh i recall the company but that you you're you were quite comfortable within your fund going from what was previously a short position to covering the short to then actually buying in a later date um as far as your sort of methodology or your approach to shorting and uh and changing your position um would you ever move more towards a a potential short position on any of those companies would there be a trigger for that or the only way i would trade those companies if i really thought there was real serious anti-trust risk right yeah and i suppose uh justin shorting in general um obviously with the risks that a short position can be theoretically unlimited to the downside uh sometimes it's not so theoretical yeah um what measures do you put in place to uh to protect investors is it a predetermined level sort of stop loss i don't have a predetermined level um i've wrestled with that my entire career you know if i lose x percent do i just get rid of it um but what what i will do is make the position smaller because you know think about this way you have the reverse problem on a short versus the long so if you have a long and let's say it's a four percent position and unfortunately you know the stock goes down a lot so it gets cut in half let's say so now it's a two percent position um that's not fun but when it's a two percent position it represents a lot less risk to the portfolio now if you have a four percent short and it goes up a hundred percent now you have an eight percent short position that's a massive risk so one of the things that i will do is that if a short gets what i think is too large because it's going against me i will shrink it brilliant thank you um next question came from uh from barry uh how difficult is it in your opinion for uk based fund managers to run a successful u.s fund do you need feet on the ground i can't answer that question i have no experience with it i love the uk i love the visit um but i just can't answer the question well i'll add a little bit to that from my point of view because we we find it's quite hard to find particularly in the us active fund managers that do consistently outperform to outperform the index do you think there is something about the us market that makes it perhaps harder than some other markets that it's more efficient in that way or in that necessarily more efficient i think the um the etfs and the indices i think it's more zero rates that in a world of zero rates which we've had for now on and off for a very very long time active management is harder to outperform because questions of capital allocation become a lot more theoretical i'm not saying it can't be done you know but um it's harder yeah um this was actually a a question i came up with but um it was following what mike's just said there about sort of active passive debate um obviously i suppose uh sort of assuming it's the same in the us but i suppose all areas of finance and investments are coming under more and more pressure on fees and costs and one of the main criticisms of hedge funds in general and in the past has certainly been around the the cost and the traditionally high fees in the in this part of the market how do you approach cost and how much added value do you really think you can add compared to lower cost trackers well i mean look i i if if you just want to be long you don't need me if you want someone who can manage risk over a cycle you could use me because i'm long enough short um in terms of the fees i have done something very radical so your typical hedge fund will charge one and a half percent management fee and anything went from 15 to 20 of the profits plus expenses so when they say plus expenses you know if they if they hire a consultant to look at something you pay for that you pay for their bloomberg et cetera et cetera et cetera so the one and a half percent can very quickly become two and a half three percent plus the fifteen to twenty percent of the of the profits um i charge uh a fee of 1.3 percent no no percentage of the profits and no expenses so you just pay that 1.3 plus i think a small admin fee is like 10 basis points and that's it so i think that's pretty fair yeah so almost uh i suppose aligning your your your fit your your your um needs with the the needs of the investor as well so you want your money going off as much as you do that's right but i take no percentage of the profits zero really um the next question we've got here from uh is from paul uh so you mentioned earlier about the the outlook for for real estate agencies uh particularly online um it's it's been fairly positive um what's your outlook for property prices do you think they'll uh they'll both move in line it's a great question i think property prices in the united states outside of the cities will go up you're already starting to see for example you know for example yesterday lennar which is one of the stocks that i owe it's one of the it's maybe the second largest home builder in the united states announced a bang-up quarter they beat the estimates by a lot and one of the reasons was that they have pricing ability they've been raising prices excuse me raising prices so i do think property prices are going to start to go up not crazy you know it's not uh it's not going to be like 2006 whereas people thought if you don't buy a house today you're gonna kill yourself um but they'll go up really and uh this one came from uh anonymous which is uh um can you discuss the short softbank position please is this based on the vision fund as the fund is also long alibaba well yes it's long alibaba but it's incredibly levered i mean look we could talk about this for hours but um they have a lot of bad investments they have a tremendous amount of leverage it's a good position to have as a short you know certainly against all of my technology laws you know companies that are very levered in a bad economic environment and we still are in a big economic environment don't kid yourself um can sometimes get into big trouble brilliant a couple of questions say we'll try we'll try and get through as many as we can um so this one came from brian uh are you concerned about the overstocking in many sectors such as the automotive industry and are some of these stocks overvalued what do you mean by over stocking yeah so i suppose uh my interpretation of that would be you mentioned earlier about the the stockpiling within uh within the consumer staples a large part oh there's very little inventory because there hasn't been any production um so for example you know we re my wife and i recently bought we bought a cheap like as a summer car um and the um the dealer told us that basically the the jeep that we bought was like the last cheap it sounds like a movie the last g um um we bought the last jeep and there wouldn't be any more jeeps until production started to ramp up so you know there's no overstocking at autos believe me um you know whatever cars that are on the dealership that you see that's it one of the questions again uh so you mentioned earlier about 911 and i suppose one of the the themes that came out of that was people moving out of the city um i remember from a previous event that our founder colin lawson hosted he mentioned around uh particularly in america people started to drive more uh and actually given that driving is more uh has higher fatalities than actually in aviation in general um that this was a there was that shift towards driving in general um what's your opinion i suppose on investing in av the aviation and i suppose you could extend that to travel as well we have no positions in aviation and we have no positions in travel other than las vegas sands which is really a play on macau more than anything else i honestly don't know um what's going to happen to aviation and travel i can only tell you um that i have twin daughters who just graduated college and as a graduation gift we were supposed to go to disney world and they were graduating in late may so we were going to go to disney world i think like the very very beginning of june which obviously got postponed um and we rescheduled it for august 15th so call me back after august 15th then i'll let you know what the parks were like because i have a feeling this looks going to be pretty empty and we'll be wearing masks so i don't know what's gonna happen to travel i really don't but i'll have a better idea after i get back from disney world with my girls i need to go and do some research i'm going to do some hands-on some real hands-on research now i suppose what this is a question that's coming from uh from matthew um but i suppose within you you mentioned earlier about the uh the position of your uh fund at the moment is around 65 net long and you mentioned that's about as long as you're able to to go to so this is obviously within the fun that you manage at the moment you have limits of how long you can go yes the limit is 65 yeah you're a long short investor but would you would you ever ever disregard that long short would you ever just go full long um well the only way i could be for long is i'd have to eliminate all the shorts yeah and then have only 65 percent of my capital and logs yeah otherwise have to change i have to go and change the fun documents which is not pleasant yeah i suppose theoretically outside of the the actual fund uh would you would you ever consider going i suppose full bullish well i you know it's interesting i have half my money we also have a long only business as well so i in terms of what does steve eisman do with his personal money take my personal money whatever it is divide it in half half of it mimics the long short portfolio and half of it mimics our long-only portfolio so this way i have a hundred percent skin in the game for both businesses and you have no advice which i think is fair and no bias from one to the other i don't have any bias yeah fair enough i think i think from our point of view it's just 50 50. if i had a buyers that said that's too bright i think from our point of view we'll always say you know if you've got the risk tolerance for 100 equity uh you can tolerate the ups and downs and if you've got a long enough time horizon then sure but a lot of people a lot of a lot of people don't so very much taking my interviewer hat there rather than my financial planner hat there mike um so we actually have there's only one question left which which came in from brian uh you've touched on some of it i suppose um throughout he's mentioned about um you know the the impact on on not just he's mentioned about the uk but the impact on profits and and um i suppose the impact on the economy um i suppose uh the question i'd i'll put to you is um with with some of the sort of i suppose one of the the notable separation almost between the economic data that's coming through and what stock markets are doing uh on that particular day the one that i particularly remember was the the day that they announced the unemployment figures in the u.s for march happened to be i think it was a 23 rise in the u.s stock market um what do you feel that the stock market brian's question is the stock market doesn't appear to be recognizing the seriousness of some of the economic information that's coming through um so would you ever bet against it or would i suppose you take a more selective approach i think it's hard to take a very negative view of the stock market right now giving free money um like i said earlier i think the only way to at this point to really have a very negative view would be to assume that before we're going to have a real horrible second wave and or i do think if and i don't i'm not making a political judgment making a stock market judgment i think if uh vice president biden became president and the senate flipped democratic the stock market would take a very dim view of that because they would know this that their taxes are going up and you would want to be a lot more short at that point a lot more short let me emphasize a lot more sure one thing i know about people who invest in the stock market and i'm not again i ain't making a political judgment about this i'm just talking about that i know the people who invest in the stock market they do not like higher taxes i don't care what the reason is you know those higher taxes could could be creating you know economic nirvana doesn't matter just don't take my money that's how they do it and they take it very personally like i said i'm not making a political judgment here i'm just telling you i know the people who invest in the market they do not like it they like lower taxes yeah absolutely i know yeah we know plenty of people like that as ours as well um just so just just very briefly if you did go short the market how how far could you go short so you said you could only i could be 20 net sure right interesting i had been slightly less than twenty percent net long in this fund at certain points um being twenty percent next door be a very dramatic but yeah well uh steve uh thank you so much for your time today i found it absolutely fascinating it's been brilliant uh so thanks thanks very much and uh hopefully we'll speak to you again soon okay everybody be good and be safe yeah take care and uh just for me he'll just to say just thank you to everyone for tuning in and watching us and hopefully you'll uh you enjoyed that and and hopefully you can join us again for a future live event so uh take care see you

Channel: Equilibrium Financial Planning

Views: 10,060

Rating: 4.8983049 out of 5

Keywords: economy, COVID, stock markets, finance, investment, investment debate, panel discussion, steve eisman

Id: ALKPITxq1Mk

Length: 58min 10sec (3490 seconds)

Published: Fri Aug 07 2020