Pedestrians enter a Columbus Circle subway station in New York, U.S. (Photographer: Michael Nagle/Bloomberg)

U.S. Recession Would Spur ‘Massive’ Corporate Bond Losses, Eisman Says

(Bloomberg) -- The U.S. corporate debt market will suffer “massive losses” if the world’s biggest economy falls into recession, said Steve Eisman, the Neuberger Berman Group money manager who famously predicted the collapse of subprime mortgages before the 2008 financial crisis.

While the U.S. financial system is strong, “that doesn’t mean we won’t have a recession,” Eisman said in a Bloomberg Television interview in Hong Kong on Thursday. “And in a recession I think there will be massive losses in the bond markets because there’s a lack of liquidity.”

“You will see big losses in things like triple-B corporate debt, high-yield etcetera, but you need a recession first,” he said. “Corporate debt isn’t going to cause the next recession, but it’s where the pain will be in the next recession.”

Eisman’s early bets against the housing market before the 2008 crisis were chronicled in Michael Lewis’s 2010 book “The Big Short,” which highlighted money managers who profited from the market turmoil. A character based on him was played by Steve Carell in the movie adaptation of the book.

In other highlights from the interview, Eisman commented on:

Uber Technologies Inc., Lyft Inc.

“Getting involved with Uber or Lyft at this early stage is so difficult because valuation really doesn’t matter. So you’re trying to figure out what is the next incremental data point that’s going to matter. It’s too hard. Uber and Lyft aren’t valued on traditional valuation metrics, so trying to short them is a bit like shorting a ghost.”

Zillow Group Inc.

“My largest short is a company called Zillow. The reason why I think it’s an interesting short is they’ve just entered into a new business out of their basic business of being an internet platform company, where they’re going and buying houses and flipping them.”

“What I find ironic about it is why do people like internet platform companies? They love them because they generate a lot of revenue, they generate a lot of free cash flow, they’re not cyclical and they have margin expansion. And now Zillow’s getting into a business that’s capital intensive, cyclical, low margin and in a recession they’ll get killed.”

U.S.-China Trade War

“My base case is there’ll be a deal at the very last second. There’ll be a lot of volatility but my best guess is there will be a deal of some kind at the end of the day. It’s very hard to plan your portfolio around a disaster that you have no control over. That’s like rolling dice.”

©2019 Bloomberg L.P.