U.S. Markets open in 2 hrs 17 mins

Steve Eisman's Favorite Shorts and Longs

Steven Eisman, of "The Big Short" fame, went on CNBC on Oct. 16 to talk about his favorite shorts and longs and why he is short Deutsche Bank (NYSE:DB). Eisman starts off calling quantitative easing "monetary policy for rich people". He believes it doesn't help the economy and merely increases asset prices. He thinks it probably doesn't cause a bubble, as he doesn't view stocks as that expensive.


The question of profitability

Eisman is short Deutsche Bank because it is trying to shrink itself to increase profitability. In Eisman's view, the bank shrinking itself will make it become less profitable. There are no funding problems with the bank currently. This is merely a profitability problem.

A bank sells access to its balance sheet. The problem with European banks is that they sold access to their balance sheets too cheaply for decades. Deutsche Bank is an extreme example of what plagues banks all over the continent.

Reflation by the Central Bank to help the European economy is hopeless. Eisman believes every stock buyback has been done by now. Every deal has been done by now. Every startup has been funded by now, so there's overcapacity and deflation. The idea that anyone would think more QE would cause inflation seems crazy to Eisman. He cites Japan as an example; Japan's debt to GDP is 240%. Even the U.S. has a ways to go before it is even half that level. Japanese interest rates are lower than U.S. rates, which Eisman doesn't understand the reason for.

Exciting shorts

Zillow (NASDAQ:Z) and Tesla (NASDAQ:TSLA) are the most exciting shorts in Eisman's portfolio. Zillow created for itself the most dangerous business model in going into flipping houses. Its CEO is also a great internet platform creator.

Eisman thinks flipping houses is a very different business with very low margins. According to Eisman, "the internet is not going to pull the carpet out of a house". You need to manage a lot of people to pull this off. There isn't just one addresssable market here, there are thousands of markets. You don't want to roll-out this business quickly because of all the differences between the local markets and the mistakes you will make along the way.

Eisman is not betting Tesla will go out of business, because Musk manages to pull a shtick every quarter. What he likes to do is tweet that the company is doing well on deliveries, but meanwhile, other variables are terrible. He is playing this game again.

Favorite long

His favorite long is Motorola Solutions (NYSE:MSI). Motorola makes emergency communication equipment for the police and fire departments. The company has very good management as well as an oligopoly. Eisman loves that there isn't a lot of macro risks involved, as this company does not have to worry about China, trade, Brexit, etc.

Disclosure: No positions.

Read more here:



Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.

This article first appeared on GuruFocus.