‘Too hard to predict’ cause of next recession, says top investor, Latest Business News - The New Paper

‘Too hard to predict’ cause of next recession, says top investor

This article is more than 12 months old

NEW YORK: Could it be the trade war? Next year's US presidential election? For famed investor Steve Eisman, the cause of the next recession is up in the air.

"It's too hard to predict at this point," said Mr Eisman, who anticipated the 2008 financial crisis and was one of the earliest investors to correctly read the subprime mortgage problem and invest accordingly.

"What happened in 2007, 2008, 2009 was a systemic crisis.Earth almost burned. And that was because of too much leverage in the banks, and a very large asset class subprime that blew up. That risk doesn't exist anymore. Leverage in the US and in Europe is much lower. The banks are better regulated."

Mr Eisman, a senior portfolio manager who manages the Absolute Alpha Fund at Neuberger Berman, said a less severe crisis was possible in the near-term.

"We'll know more, maybe in six months, whether a recession is on the horizon or not, or whether it's just continued slow growth."

If a crisis hits, he is not worried about households, saying credit quality today is "very good" in the US, especially on the consumer side. "The biggest pain" will be felt in the corporate bond markets, in part because of post-crisis restrictions on banks that will limit their ability to provide liquidity if the bond market comes under pressure."

He said the first round of US quantitative easing in March 2009 succeeded in bringing more liquidity to fixed income markets, but there was less benefit to the overall economy from subsequent rounds of stimulus.

"All that really happened, in my view, is that the money went into the stock markets and it gave companies liquidity to buy back stock," he said. "It makes rich people richer because they own securities." - AFP