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Steve Eisman's Only Stock Pick

April 19, 2011 | About:
matsandalex

matsandalex

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Legendary hedge fund manager Steve Eisman revealed his top stock pick for 2011 at the Grant's Interest Rate Conference in New York.

Eisman is massively bullish about Forex Capital Markets (FXCM) which is a forex trading platform. Value investors who want a hedge against the falling dollar but do not want to buy gold may look to FXCM as an interesting alternative.

Eisman noted that the valuation on FXCM is reasonable to cheap. Even though the company is a fresh IPO, it already features a 1.8% dividend and only trades at 12X earnings.

Eisman also thinks that the bull market in foreign exchange has a lot longer to go. People who own Euros or dollars will continue to hedge their currency holdngs by investing in currencies with higher yields. For example, Australia's benchmark rate is 4.75%.

He thinks that FXCM is a low-risk way to profit from the so-called "currency war" whereby the developed world tries to debase their currencies relative to emerging market currencies such as the Brazilian Real and the Chinese RMB.

Eisman gained fame for being one of the few who successfully shorted subprime mortgages in 2008.

Michael Lewis told a funny story about how the combative Eisman learned that there was nothing in the ratings agency model that dealt with falling real estate prices.

"He was going to invest in these companies that were in the middle of this madness. It was insane. He wanted to take a position, he takes the position that this is all going to go bad because it seemed like it was all going to go bad to him. He called S&P, the ratings agency, and said, 'Look, I know you are rating these things AAA, and your model says they are AAA, but what happens if real estate prices go down?' And the guys says, 'Actually there is no place in their model to put a negative number. I can't tell you what happens when real estate prices go down.'"

Rating: 4.2/5 (30 votes)

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