Steve Eisman, the former hedge fund portfolio manager who shot to fame after his bets against collateralized debt obligations were profiled by Michael Lewis in “The Big Short,” said Monday that he’s buying bonds “for the first time in a long time,” with a preference for short-term debt like 2-year Treasury notes.
After years of offering paltry returns compared with highflying technology stocks, short-dated bonds are offering the highest yields since 2007, which has prompted some investors — including Bridgewater Associates founder Ray Dalio — to opine that “cash is king.”
2-year yields have risen since the start of February to 4.815% as of Monday, around their highest level since 2007.
“I like 4.8% because it’s bigger than 4.4%,” Eisman said during an interview Monday on CNBC’s “Squawk Box,” a reference to 2-year yields
TMUBMUSD02Y,
which were trading at 4.815% on Monday.
He also warned that investors are facing a “new paradigm,” and that the days of investors beating the market by simply buying and holding high-growth technology stocks are over.
“I think the days of people beating the market just by investing in tech are going to be over. And we’re going to go to a new paradigm…I think the days of investing in companies that have no earnings that have multiples of 200x will be gone.”
Tesla Inc.
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became the poster child for richly valued technology stocks, even though it’s a member of the consumer-discretionary sector like Amazon.com Inc.
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when its price-to-earnings ratio peaked north of 190x shortly before the stock market peaked in early 2022, according to FactSet data.
But Tesla shares plunged more than 65% in 2022 as growth stocks were the hardest hit by the Federal Reserve’s inflation-fighting efforts, which included hiking interest rates and allowing bonds on its balance sheet to roll off without reinvesting the money, a process known as “quantitative tightening.”
By the time 2022 was over, the tech-heavy Nasdaq Composite
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had plunged 33% as U.S. stocks suffered their worst year since 2008. The S&P 500, by comparison, was down 19.4%, per FactSet. But highly speculative tech names were even worse off: the ARK Innovation ETF
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seen as a benchmark for this corner of the market, fell more than 66%.
Their fortunes have reversed somewhat since the start of 2023. Technology stocks have led a rebound in stocks that some have termed a “dash for trash.” Although that rebound has started to unwind in recent weeks.
But what does this new “paradigm,” as Eisman sees it, entail?
The Neuberger Berman portfolio manager said he expects companies that can capitalize on “themes like infrastructure, greenification and reshoring infrastructure to the U.S.” will outperform in the years ahead. He didn’t mention any specific names, however, and he said the details of the new paradigm won’t be evident until it arrives.
U.S. stocks are off to a strong start Monday after suffering their worst weekly pullback of the year. The Dow Jones Industrial Average
DJIA,
the S&P 500
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and Nasdaq all up 1% or more in early trading.
