Top 10 Steven Eisman Quotes from Hong Kong

Steven Eisman of The Big Short fame delivered an hour’s worth of pithy and insightful comments on the global financial crisis, the markets, and the finance industry at the 71st CFA Institute Annual Conference in Hong Kong.

I selected 10 quotes from the session that were particularly compelling and offer a taste of what he covered in his full presentation.

10. Cryptocurrencies

Steve Eisman on cryptocurrency: “I don’t see the purpose of it,” he said @CFAinstitute‘s #annual2018. “What value does cryptocurrency actually add? No one’s been able to answer that question for me.” #bitcoin #cryptocurrencies #CFAInstitutehttps://t.co/QK6V12CPpH

— Steven Russolillo (@srussolillo) May 14, 2018

This was probably the least contrarian or controversial comment Eisman made. Though Eisman’s background as a banking analyst may color his judgment, cryptocurrency skeptics can be reassured that one of the few who called the real estate bubble has doubts about bitcoin and company as well.

9. Systemic Risk

Steve Eisman… “I see risks but I don’t see systemic risks.” #Annual2018 pic.twitter.com/1TxV1Ib5kx

— Jeremy (@MonocleMan1) May 14, 2018

Eisman may disappoint some with this anticlimactic answer. The media loves a crisis. After all, it is great for ratings. Investors, however, need analysts and strategists to tell it like it is.

8. Debt

Steve Eisman – people have been bitching and moaning about the deficit for 30 years they’ve still not proven it’s a problem #Annual2018

— Richard Stott (@Stotty67) May 14, 2018

Interest rates are indeed a good indicator of how nervous the market is about debt levels. The debt-to-GDP ratio, in particular, is among the most popular metrics used by economists and strategists to assess systemic risk. While there may be logic to that, Eisman clearly thinks the logic is faulty.

7. Real Estate Markets

“I don’t see any financial crisis in the near future. The real estate market in the US is healthy. The Canadian real estate market may experience some upheaval soon, but it’s not going to be earth-shattering…” Steven Eisman #Annual2018

— Manasseh, MD, CFA (@knightofdelta) May 14, 2018

The health of real estate markets supports Eisman’s belief that the next global financial crisis is not on the horizon.

6. Bullish Sectors

Eisman most bullish on financials (deregulation) and tech(disruption) stocks; biggest risk to the market is rates going up too quickly. #Annual2018 @CFAinstitute

— Dave Larrabee (@davelarrabee) May 14, 2018

Eisman likes banking stocks. As banks increase leverage again, he anticipates a 75% increase to the sector’s ROE. No other sector in the S&P will come anywhere near that. He likes technology for its disruptive potential.

5. Reading Material

“What do I read? I’ve been reading comic books since I was 10. Some of them are very prescient. One of them predicted the election of Donald Trump.” – Steve Eisman #Annual2018 pic.twitter.com/i8Mcrdqcq8

— CFA Institute® (@CFAinstitute) May 14, 2018

Eisman enjoyed telling an exhibition hall full of CIOs and portfolio managers that he has a collection of 8,000 comic books and reads them for inspiration. It sounded like a stretch and probably is. But he justified his habit as a way to follow “cultural” trends. No argument there. Who doesn’t want to be cultured?

4. Larry Kudlow

In 2007, Larry Kudlow almost drove me insane with his proclamations that it was a “Goldilocks economy.”

-Steve Eisman at #Annual2018

— Dave Larrabee (@davelarrabee) May 14, 2018

Clearly, Eisman was not, and still is not, a Kudlow fan.

3. Lehman Brothers

Eisman on Lehman’s failure: It was biblical- someone needed to be sacrificed. #Annual2018 #CFA pic.twitter.com/MtI2zw1IbN

— Deslin Naidoo (@MagusArcanus) May 14, 2018

Eisman has a gift for explaining complex stories with just a few words, which is no fun when you’re the moderator struggling for a comeback. That said, it’s great for investors who simply want to understand what’s really going on. The fall of Lehman Brothers can be traced to many causes, but Eisman zoomed in on one important aspect.

2. Genius

Eisman: an entire generation of Wall Street bankers mistook leverage for genius. #annual2018

— Charlie Henneman CFA (@CHenneman) May 14, 2018

This exemplifies Eisman’s “outsider” status. None of these “geniuses” would listen to him in the run-up to the largest financial crisis since the Great Depression.

1. Ethics

Eisman: Incentives trump ethics every time. #annual2018

— Charlie Henneman CFA (@CHenneman) May 14, 2018

To me, this is a profound statement and helps explain why traditional approaches to ethics may not work the way they are intended when the next financial crisis hits.

The industry may want to rethink how it approaches ethics. With behavioral biases, for example, we don’t try to rid investors of them — which is probably impossible anyway, given how human brains are wired. Instead, we design mechanisms that nudge investors towards less damaging.

The question is: Will the next generation of investment professionals devise mechanisms to nudge practitioners towards aligning their own interests with those of investors?

This article originally appeared on the 71st CFA Institute Annual Conference blog. Experience the conference online through Conference Live. It’s an insider’s perspective with live broadcasts and recorded video archives of select sessions, exclusive speaker interviews, discussions of current topics, and updates on CFA Institute initiatives.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

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