No, Steve Eisman will not call for another financial crisis

“I don’t worry about the financial system anymore,” Eisman said in a recent interview. “A lot of people do — they seem to see it as one crisis a minute.”

Successfully shorting the collateralized debt obligations in the mid-2000s changed Eisman’s life forever, and Steve Carell immortalized his decisions in the movie “The Big Short.” But along with the fame, fortune and respect came a few annoyances, including a constant chorus of questions about where the next bubble is or when the economy will implode.

“Every time I go on these shows, it’s like they’re begging me — begging me — to predict the end of the world again,” Eisman said, unprompted by a question about bubbles.

Although the portfolio manager is tired of being asked about bubbles, he said he is more amused than irritated by it. Negativity sells, but Eisman refuses to sell it.

“If the facts change and I see something, I would say something,” Eisman said. “But I don’t go out of my way to predict the end of the world, when I don’t see the end of the world.”

Where is not the next bubble

It’s hard to watch the markets without hearing from the permabears. These pundits make tantalizing, fear-inducing predictions and cling to them forever or until they come true. These warnings should not be changed and are updated only occasionally based on data that supports their narrative.

One of the most common narratives among permabears is that the US national debt burden will become unsustainable, causing global economic disaster. In this scenario, declining confidence in the US dollar costs the greenback its status as the world’s reserve currency, while US Treasuries lose value and become worth little more than the paper they are printed on.

Bear commentators have been issuing these warnings for about four decades, Eisman noted, and they’re unlikely to stop anytime soon. The ultra-rich investor is convinced that such an apocalyptic scenario is unrealistic, as he cannot begin to imagine what could cause the disaster.

“You have an entire global financial system that works, it works, it’s embedded in the U.S. dollar and the U.S. Treasury,” Eisman said. “It takes a lot to break such a system. And if you have more federal debt, I don’t think it will. Something truly calamitous has to happen and I just don’t see any of that happening. I can’t see at all.”

The US dollar and the economy are the backbone of the global financial ecosystem. If it imploded, all the money in the world would have to go somewhere else, and Eisman isn’t clear where it would be. That makes the US akin to the best house in a bad neighborhood, to borrow a decade-old adage.

“You have to have an alternative — kind of an alternative to government bonds at the U.S. Treasury,” Eisman said. “It won’t be China; it won’t be Europe; it won’t be Brazil. So until something else comes up, there’s no alternative. I don’t spend a lot of time worrying.”

And no, crypto bros: Eisman said digital currencies aren’t ready to be a large-scale solution either.

“As much as people love to invest in crypto, the size of crypto — even how big it’s gotten — is nothing,” Eisman said. “It’s a pittance compared to the size of the global US Treasury market.”

Eisman added: “You can’t base a global financial system on a currency that goes up and down every day like a yo-yo.”

Not only is it a crisis off the table, but Eisman said the same is likely true of a general recession — even as he acknowledges growth is slowing.

Economic crises are usually caused by one of three factors, he said: a banking crisis; weak consumer spending, which accounts for two-thirds of US GDP; and overinvestment, especially in industrial equipment or technology.

Eisman said a repeat of the financial crisis is off the table because banking regulations have been effective in allowing leverage to leave the system. Similarly, the money manager said consumers are not burdened with debt, which is an encouraging sign.

And while some may equate the tsunami-sized wave of investment in artificial intelligence with heavy investment in telecommunications infrastructure during the dot-com boom, Eisman thinks it’s an apples-to-oranges comparison. AI may not be in its infancy, but he thinks it’s far from bubble territory.

“AI is still a long way off,” Eisman said of its peak. “Call me in a few years and maybe we’ll be overinvested. But right now, I don’t think we’re close.”