Steven Eisman, who was portrayed in the movie and book "The Big Short," appeared on CNBC Aug. 8 to talk markets and one of his short positions. Eisman famously bet against subprime mortgages before the crisis.
Credit
Eisman said that he never relies on bond ratings by Moody's (MCO, Financial) and Standard and Poor's. Instead, he researches companies' credit risks himself. The business model of the rating agencies is unchanged since the credit crisis, he said. As long as issuers pay rating agencies, there is always the risk of credit rating inflation.
There is probably too much corporate debt, according to Eisman, but there probably isn't enough to threaten the system. Leverage in the financial system is about a third of what it was in the financial crisis. For the first time, he feels the financial system in the U.S. is safe, he said. That doesn't mean people won't lose money in the next recession, but he sees no major system threat.
Recession
Eisman did not have a strong opinion on when the next recession will be. The trade war is a clear risk and the protests in Hong Kong could turn into some kind of a Black Swan event, he said. It is more likely than not that there won't be a trade deal. It is not clear how much is priced in. We will see in the next two months.
Hong Kong
The thing Eisman is most worried about is Hong Kong. The protests are getting very violent and seem to be escalating. Neither protestors nor the government seem to be backing down. Things could get very ugly. That's not a positive sign in terms of negotiating a trade dea or for global markets, he said.
Investment ideas
Eisman is shorting Zillow (Z, Financial) because he views it as having a flawed business model. It had a good business, which was its internet real estate platform. The growth there is zero. It is trying to change pricing, but that's a problem. It also has a business where it buys and flips houses. Eisman said the company does not understand the risks associated with that business. The CEO talked about total addressable market in this respect. Real estate consists of thousands of micro markets throughout the country. He sees the situation ending with massive write-downs.
Disclosure: No position.Â
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