Taps Coogan – October 11th, 2023
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Steve Eisman, fund manager at Neuberger Berman and investing legend from the Subprime Crisis and 2008 Recession, recently spoke with CNBC to reiterate his view that banks are “uninventable” and to issue caution around sectors relying on consumer spending where financing is involved.
Steve Eisman on banks:
“Let’s start with the conclusion, (banks) are still un-investable… The problems are that interest margins are still under pressure. There are about $2 trillion in excess deposits in the system that are going to continue to gradually deplete, so estimates are still probably too high. You’ve got the regulators… fighting the last war. They’re increasing the capital requirements of the banks when really what they need to do is just improve the liquidity of the mid-cap and small-cap banks, and so that will hurt returns next year… I have no prediction about there being a recession at all, as of now there is no data, but let’s assume there is one. You haven’t had a credit cycle yet… The only reason to invest in banks is that they’re cheap but there is one thing that I’ve learned in my career is… investing in something just because it’s cheap is a value trap and shorting something just because it’s expensive is a death wish…”
Steve Eisman on the consumer:
“In terms of the overall health of the economy the consumer is fine. The consumer has savings, the consumer is employed, the consumer has income. So it’s not a data point in terms of there being a recession. Where I think you can be negative is just that rates are a lot higher. It’s more expensive to buy a house…, a car, it’s more expensive if people finance something… So, any part of the economy involved with the consumer buying something but also requires it to be financed has problems. That’s not an indictment of the consumer, it’s just a mathematical fact…”
“When mortgage rates were 7%… for you to buy somebody out of a house where they have a 3% mortgage, for you to have the same monthly payment, the price had to be down 40%. Now (that mortgage rates are 8%) it’s 50%…”
There is more to the interview, so enjoy it above.