Verbal acrobatics about the redundancy of defining an event as a “black swan” (yes, yes, it is by definition impossible to predict the unpredictable, we get it) aside, yesterday Steve Eisman, the infamous star of “Big Short” subprime fame, said that while he is not worried about the American financial system saying it is sound and that there is little risk of a systemic crisis like the one he effectively bet against more than a decade ago, he revealed that his biggest fear right now are the Hong Kong protests, which he says could endanger any kind of trade deal with China and hurt the global economy.
And yes, he called them a black swan: “I think the potential black swan, if there is a black swan right now, is what’s happening in Hong Kong right now,” said Eisman on CNBC’s Power Lunch. “If things escalate even further in Hong Kong, that would have a real impact back on the global economy.”
He is right, of course, only whereas Black Swans are events that nobody can anticipate, and thus when they arrive they shock the world, the risk of an insurrection in Hong Kong – as well as its potentially dire consequences – has been obvious to anyone following what we previously dubbed “the potential epicenter for the next global crisis.”
Hundreds of thousands of protesters have taken to Hong Kong’s streets since early June, due to opposition to a now-suspended extradition law that would have allowed people in the city to be extradited to Mainland China. These protests demonstrate the large discontent the people have for the city’s government, which has become a proxy for mainland rule. Meanwhile, for Beijing the ongoing protests represent a sign of weakness: if China’s 1.4 billion citizens see Beijing expressing doubt or weakness over how to bring Hong Kong to heel, the risk is that similar violent middle class insurrections could follow anywhere else in China. This, as China watchers know, represents the biggest nightmare for Beijing’s top politicians.
And much to the chagrin of China, the Neuberger Berman managing director said the protests in Hong Kong “seem to be escalating.”
“The people who are protesting are not backing down, the Chinese government doesn’t seem to be backing down, so if cooler heads don’t prevail it’s possible things in Hong Kong could get very ugly.”
Of course, as we listed last night, China has many other headaches on its hands, including trade war, PPI deflation, soaring food inflation, a trade war with the US, and record high debt. Eisman said conflict in Hong Kong could further adversely impact the trade war between the U.S. and China and could ripple through the global markets.
“That’s actually what I’m worried about the most right now, because every weekend we’ve got this drama where the people of Hong Kong are having protests in the millions and its starting to get very violent,” said Eisman.
“That is not going to be a positive in terms of negotiating a trade deal between the United States and China, its not going to be a positive at all for the global markets,” said Eisman.
Beside losing sleep over Hong Kong, Eisman is famously short Canadian banks, and is currently betting again shares of Zillow.
His full CNBC interview below: