Ed (2:05)

Here's a question. Have you ever come up with a business idea at the pub or at a bar? I feel like you probably have.

Scott Galloway (2:10)

God, I've had so many bad business ideas.

Ed (2:13)

Is that where you came up with aardvark?

Scott Galloway (2:15)

Oh, you know about aardvark? That's very impressive.

Ed (2:19)

I tried to roast you there. I. I can't tell if it landed.

Scott Galloway (2:24)

What did you about coming up with a bad business idea at a bar?

Ed (2:27)

That's right.

Scott Galloway (2:29)

Well, here's the thing. I'm getting. I'm going to New York to get my physical because I belong to one of these high end concierge Places where they bring you a Cobb salad before they have some guy stick two fingers up your ass and tell you to cough, which is worth 120 grand a year right there.

Ed (2:42)

Oh, boy, oh, boy.

Scott Galloway (2:44)

Anyway, so I'm kidding. And I know what they're gonna say. They're just gonna come back and say, oh, you know, on the whole, you're pretty good. You need to drink less. I'm like, no, not happening.

Ed (2:53)

I feel like you have been drinking a little bit less. In fact, when you and I got a drink, I noticed you did not get a drink.

Scott Galloway (2:58)

Yeah, but you're not worth it. You're not worth it. If you had bigger tits, we would have been parties. By the way, speaking of big tits, I think height and men is the next. Is the new big tits. What do you think?

Ed (3:09)

Height in men?

Scott Galloway (3:10)

Yeah, 100%. Hasn't it always been not as much? I think that online dating has distilled things down to some anodyne metrics and that people have decided that if you're over 6ft, specifically women, that's an attribute and only I think about. I was reading somewhere, if you're over 6ft and make over six figures, that's like 8% of the population.

Ed (3:32)

It'd be interesting to see if height augmentation becomes the new breast augmentation. If people keep on extending their shins and their limbs. I know a lot of men are putting some. What do you call them in their shoes?

Scott Galloway (3:44)

Lifts.

Ed (3:45)

Lifts. That's right. Would you ever do that? I mean, you're already a pretty tall guy, but let's say you were five, six. Would you wear lifts or would you consider something like that?

Scott Galloway (3:59)

I guess. I don't know. Would you?

Ed (4:02)

No, I don't think I would. But I'm interested by how more socially acceptable it seems like it's becoming. Maybe I'm getting the completely wrong idea off of social media, which is just a total misrepresentation of everything. But I've seen people talk about it online, which makes me think maybe people are actually doing that. I find it a little bit insane, but maybe it isn't.

Scott Galloway (4:25)

I don't know. How tall are you, Ed?

Ed (4:27)

6 3.

Scott Galloway (4:27)

You're taller than me. Yes, you are. This is what you have to look forward to. I used to be 6:3, and I'm shrinking. You start shrinking as you get older. Your height shrinks, but your prostate gets much, much bigger. And you also develop this incredible ability to grow hair from your nose and your ears. So keep in mind that that's. Yeah, yeah. Lots to look forward to. Yeah. What else is going on, Ed?

Ed (4:57)

Not. Not very much. I'm going to California this week, which will be interesting. And then I'm. Then we've got south by Southwest, which I didn't realize is literally next week.

Scott Galloway (5:08)

Very excited.

Ed (5:09)

I was looking at the calendar, I was like, okay, what have I got coming up. We literally have our live show next week. I completely did not really think about that or consider that, but I'm very excited.

Scott Galloway (5:19)

I'm excited, too. What day is it? Are we on the main Stage?

Ed (5:22)

Main Stage, March 14, 10am Be there or be square. It'll be very exciting.

Scott Galloway (5:27)

Balance me out. You're taller than me.

Ed (5:30)

Okay, cue lifts.

Scott Galloway (5:32)

All right, let's get into the stories today. What's going on, my brother?

Ed (5:35)

Let's do it. Let's do it. We are speaking with a Wall street legend, Steve Eisman, investment analyst, portfolio manager, and also you know him from the movie the Big Short, where he was played by Steve Carell. Steve, thank you very much for joining us on Prof. G Markets.

Steve Eisman (5:51)

Thank you.

Ed (5:55)

So many people know you as the guy who was played by Steve Carell in the Big Short, one of my favorite movies of all time. You're also known for predicting the 2008 financial crisis and acting on it. So we want to get your views on what's happening in the world right now. We don't have a subprime.

Steve Eisman (6:16)

Is something going on?

Ed (6:20)

That's right. So we've got a lot going on. I guess we'll start with this. Based on what you're seeing today, what are your greatest concerns?

Steve Eisman (6:29)

The war is obviously a great concern to all of us as human beings and Americans. I don't think that the war itself, long term is going to have a major impact on the market because at the end of the day, the greatest superpower in the world is going to defeat Iran. I mean, that's inevitable. That what I think people are probably just beginning to realize today is this is not going to be a two day affair. It should be a two day affair because if, if Iran was run by a normal government that had the interests of its own people at heart, they'd have surrendered 24 hours ago or 48 hours ago because there's, there's no way that they can win. They're up against the greatest superpower in the history of the world since the Roman Empire. But this is a regime that is essentially a death cult and doesn't have the same motivations as a normal regime has. They view the death of their own people, the martyrdom of their people as a sign of their own sacredness and righteousness. And therefore, when you think that way, you can absorb a lot more pain because you see death as a virtue. So it's going to take longer than a couple of days to decapitate this regime. And I think people are probably just beginning to realize that. And that's why the market's down again yesterday after having rallied, because yesterday they thought, oh, this will be over soon. Today they realized it's not going to be over that soon.

Ed (8:05)

Yeah, this seems to be the disagreement among the markets right now. I mean, regardless of what your views are on the war, on the potential regime change, or on Iran itself, I mean, the question seems to be will this mean more certainty or less certainty? And we're seeing that reflected in prices. We're seeing that reflected in the price of oil, which didn't go up dramatically, but it did go up because most of the oil is coming out of the Strait of Hormuz, which is right in the region. And so there's some uncertainty there. I guess my question for you, as someone who has seen crashes, who has seen crises, who has predicted one of the greatest moments of uncertainty of all, what does this mean for certainty and for stability going forward?

Steve Eisman (8:58)

Look, my hope long term is that the Iranian regime changes and the Middle east is remade and things are much better. But we're not going to know that for weeks. But regardless, this is not whatever the eventual resolution here is is not going to be a long term impact on the global economy. In my view, whatever the eventual resolution is going to be.

Ed (9:24)

Why is that?

Steve Eisman (9:25)

Because whatever happens, the Iranian regime will change to some degree or another and things will settle down. I don't know who's going to run Iran. Nobody knows who's going to run Iran. But it's not, obviously it's not going to be the Ayatollah Khomeini. He can' he's dead. So whoever runs it is probably going to be somewhat more amenable to the United States. And I don't think President Trump is going to allow someone to take over who's not more amenable to the United States. How much more amenable? We don't know, but things will be better. How much better? I don't know. It'll take three to four weeks to sort of sort itself out. And by that time, oil prices will be back down.

Ed (10:04)

So in other words, this doesn't change your investment thesis or your investment strategy

Steve Eisman (10:10)

at large, not by a single dollar

Scott Galloway (10:12)

Part of what I would wrap your thesis in is that it's the things you're expecting you're worried about are usually the things that get you. It's the things that people aren't talking about. Are there any risks below the surface that you don't think people are risk that there's asymmetric downside in terms of the attention they're getting? What are the risks you see that people aren't pricing into the markets right now?

Steve Eisman (10:34)

I think the two biggest long term risks to the market by far are related to AI and related to private equity and private credit. You know, in terms of AI, the risk that I don't think is realistic is, is some nightmare scenario where you're going to wake up one day and everybody's going to stop buying Nvidia chips. I, I that's not possible, at least not anytime within the next year. And the reason why that's not possible is just because last year all of AI infrastructure spend was $450 billion. And this year if you just look at Amazon, Google, Meta and Microsoft, just those four is $650 billion. I mean these are crazy numbers and I'm not trying to justify them, but I'm not spending the money, they're spending the money. So when you're going from 450 billion total to just 650 billion just by 4 guys, I'm not particularly worried about whether Nvidia is going to have another good quarter. That's not the risk. There are some people out there who think that the entire LLM enterprise is flawed. And I've spoken to them and they may be right in terms of that. It's not going to create artificial general intelligence, but I think there's enough evidence out there that everything that's being created by people who are doing AI has value. The question is how much value

Ed (12:01)

so

Steve Eisman (12:01)

much money is being spent. Are the returns that these companies are going to generate, are they going to justify those returns? I suspect not. I suspect and it's way too early to make that prediction because we won't know that for a year. But if I had to stake my life on it, I'd say we'd have some kind of replay where in the Internet bubble, the first generation of Internet companies basically failed and it was the second generation of Internet companies that took us on to glory in terms of the value of the Internet. So we could have a situation where companies like AI and anthropic fail and then there's a recession and then you come out of it and the companies that emerge afterwards are much stronger. And that's one possible scenario. And the other thing that I worry about greatly is the tremendous growth in private credit that's been created by private equity, and that a lot of that credit is in captive life insurance companies that are owned by private equity. And this is a $2 trillion market. All the loan growth in the United States since the great financial crisis has not occurred in the banks. The banks have had very little loan growth for the last 17 years. With only a few exceptions. Almost all the loan growth in the United States has taken place in private credit. Now, we have not had a credit cycle in 17 years. So again, this is, you know, if there's going to be a credit cycle and there's some pretty good evidence now emerging that we're starting to have one. How bad? I don't know. But whatever problems that will occur, I think will occur in private credit, how bad those problems will be, no one knows. You know, there's no data. You know, one of the difference between talking about private credit now versus talking about subprime loans back then was subprime securitizations reported their data to Moody's and S and P every month. So if you spend, I think it costs. When I was running my hedge fund back then, I think it cost us like $10,000 per year, which when you think about it, for a database of that was that important, was it was not that expensive. You could literally look at every single securitization that was created in the United States and look at all of the credit data for every single securitization. And there were methods where you could see whether the newer securitizations were doing worse than the older securitizations, which is the way you wanted to look at it. And you could do some real credit analysis to figure out what was going on, which is what I and my partners did in terms of private credit. That market has grown enormously. There's some signs of a couple of bad credits here and there. And that's all I can say because I don't have any data.

Scott Galloway (14:53)

I just want to double click on both those things. Are you saying the risk around AI is the risk to other companies like we've seen with this quote unquote, SaaS apocalypse, or the risk of overspending or valuations built into these AI companies? How does the risk manifest itself as it relates to AI and valuations?

Steve Eisman (15:10)

Let's just pick on OpenAI just because it's so much fun to pick on OpenAI. So here's a company that just raised $100 billion at a valuation of, I think it was $850 billion or 700. I mean, when you start to get to these numbers, it starts to lose meaning, let's call it $800 billion. So now you've raised $100 billion, you're losing money, you're going to continue to lose money. At some point you got to make money. Are you going to generate sufficient level of returns to justify the valuation that you got on your last round? I would suspect probably not, but we won't know that for a year. So you know, once, once that happens, once people start to realize that the returns aren't going to be as good, you will see a slowdown. I think in the whole AI enterprise, that's the risk.

Scott Galloway (16:01)

On the private credit side, does that mean there's opportunity or you think that there's going to be further erosion of value among the biz dev guys, the blue owls, the TPGs, the KKRs of the world?

Steve Eisman (16:13)

Well, they would say that people are picking on their exposure to software. And what these companies basically did was private equity went out and bought companies, a lot of which was during COVID when rates were basically zero. About 20 to 25% of the companies that were bought were software type companies. And they were levered up with private credit from funds mostly owned by different kinds of private equity companies or business development corporations. And the question is whether or not these are good credits or not. Now people are freaking out because they think that AI is destroying software. I actually don't see any signs of that in terms of the earnings. You know, I was sort of amused when ServiceNow reported about a month ago. So when ServiceNow reported, I tried to go through the numbers as carefully as I could and they were great. I mean, there was no question and there was not one number that you could pick on to say, aha, here's the problem. You know, the revenue was over 20%. They beat on revenue, they beat on guidance, they beat on earnings, and the stock was down 10%. So, you know, I've never seen a group that goes down on good news, bad news and mediocre news. It just goes down on news. So, you know, people are freaking out, but at this point they're freaking out on, on a narrative. There isn't any. We know if you go through the numbers of these companies, there's no real evidence that there's a, that there's actually a problem, at least not yet.

Ed (17:57)

It's really interesting because it seems that there are so many different scary narratives out there that are premised on very different things. Like for example, the AI bubble narrative was the concern that we're getting ahead of getting too far over our skis, that these valuations are too high, that we're not going to see the returns. That's its own concern. Then there's the concern that AI is so powerful and this is what we saw in the Citrini article, that it's going to delete all of these jobs and that it's ultimately going to destroy our economy, which is going to this sort of self defeating mechanism. And then there's the other side of this, which is the private credit issue, which I have to say I, and I think many of us understand a lot less than the first two.

Steve Eisman (18:40)

You're not alone.

Ed (18:41)

Yeah, right. And I think the thing that is, is striking to me is your point, which is definitionally we don't know what is going on because it's private. That's just what it is.

Steve Eisman (18:54)

It's actually worse than that.

Ed (18:56)

Okay, please. Because

Steve Eisman (18:59)

everything I've said so far is bad enough. Okay. But one of the parts that's worse, which again, I don't know how to quantify it, is that over the last 10, 12 years, many life insurance companies have been bought by private equity companies now. And then what they have done is they have improved the returns of those companies by having those companies invest in the paper that they themselves generate. Now in their defense, the yields on that paper are higher. The risk isn't necessarily worse. Could be, we don't know. But the other thing that's, that has happened is they run these companies much more aggressively than traditional life insurance companies will run. So normally when you reinsure, you reinsure part of your book with a third entity and you have an arm's length transaction and you lay off some of the risk onto a third party reinsurer. What some of the private equity companies have done is they've reinsured part of their books to their own reinsurers which sit over, which sit outside the United States in very, very opaque transactions, but which appear at least appear to me to pretty dramatically increase the leverage of these companies in pretty hidden ways. So not only do you have private credit, you have private credit sitting in life insurance companies controlled by private equity who have levered those companies even more. That's the complexity of it. Now, thank God we haven't had a credit cycle in this country in 17 years. So everything that I'm talking about in some ways is academic at this point because nothing bad has happened, which is what the people who run private equity would say. If you went to the Blue Owl and said, and you basically told this story, they would probably say something like, what are you complaining about? Nothing bad's happened? Well, nothing's bad happened because we've been very, very fortunate not to have a credit cycle. If we have a credit cycle. And like I said, there are some signs that it's starting to emerge. We'll see what happens.

Ed (21:22)

It seems as though one of the differences, and this is what we saw in 2008, is that those bad loans were not contained. They sort of extended to every part of the US economy, which is why it was as painful as it was. So far, what we've seen is there is some concern over private credit. I've been reading about it, I've been hearing about it. I've watched the stocks of these companies like Blue Owl, which is kind of the poster child. I've watched it go down. And to me, I sort of look at that and think, well, I guess people kind of know what's going on. So if this means that Blue Owl goes out of business, then then whatever. But I guess the next question becomes, is it bigger than that? Are there ways where this can materialize and affect all of us?

Steve Eisman (22:07)

The reason why the great financial crisis was so bad. I mean, it was bad enough that there were bad subprime mortgage loans and people lost their homes. What made it really bad was that the banks almost were going to. They were all going to go bankrupt. And when banks go bankrupt, people can't get their money and people can't get their money. It's a freak show. That's why the great financial crisis was so bad in principle. Here it won't get as bad because the banks aren't the lenders here. It's the blue owls of the world and the kkrs and the polls of the world. So mostly the people who would be hurt here would be institutional investors. The caveat that I just gave you is that some of this stuff is in life insurance companies where they're individual policyholders. The other caveat is that banks do make a lot of loans to private equity companies, so they help fund them as well. Now, how big that is is not exactly clear. It's not small. But I don't, I don't think the banks, the bank. Look, the banks are the best capitalized they've been in our lifetimes. So even if something really bad happened to private equity, I think the banks would be fine. People might get nervous, but I think it'll it'll be okay. I'm more worried about what's going on in life insurance than I am worried about anything going on in the banks.

Ed (23:32)

We'll be right back after the break. And if you're enjoying the show so far, send it to a friend and please follow us if you haven't already.

Scott Galloway (23:47)

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Kara Swisher (25:58)

hey, Kara Swisher here. I want to let you know that Vox Media is returning to south by Southwest in Austin for live tapings of your favorite podcast. Join us from March 13th through the 15th for live tapings of Today Explained, Teffy Talks, Prof. G Markets, and of course your two favorite podcasts, Pivot and On with Kara Swisher. The stage will also feature sessions from Brene Brown and Adam Grant, Marques Brownlee, Keith Lee, Vivian Tu and Robin Arzon. It's all part of the Vox Media Podcast stage at south by Southwest, presented by Odoo. Visit voxmedia.comsxsw to pre register and get your special discount on your innovation badge. That's voxmedia.comsxsw to register.

Scott Galloway (26:46)

Really, you should register.

Kara Swisher (26:47)

We sell out and we hope to see you there.

Ed (26:59)

We're back with property markets.

Scott Galloway (27:01)

One of the most impressive things about what you and your colleagues did was you saw the risk that other people weren't seeing and you figured out the instrument to leverage that alpha or that dislocation. What's the trade here if you think that private credit is riskier than people perceive?

Steve Eisman (27:19)

The problem is that in theory you would try and buy credit default swaps on various kinds of credits. The problem with that trade is that that market is far less liquid than it was in 2006 and 07 because the regulators don't like that market very much and they've placed a lot of capital requirements on it. So for example, I don't know if you saw Oracle's credit default swaps have completely blown out. You could think about whatever you want with respect to AI. I don't think Oracle is going bankrupt. The reason why Oracle's credit default swaps have blown out is that the credit default swap market is extremely illiquid. So if someone, some hedge fund like Elliot Associates decides hey, you know what, let's go pick on Oracle and go buy some credit default swaps, it doesn't take a lot of volume to move that market. So the fact that Oracle's credit default swaps have blown out to some very, very high level right now, certainly Oracle's problem, but it's happened because it's in a liquid market. So you know, doing what I doing some version of what I did in the debt markets right now is very, very difficult. The only obvious trade is to keep it would be for Someone to keep shorting the blue owls of the world. But you know, those stocks have, have gotten obliterated.

Scott Galloway (28:48)

Curious. In terms of risks that we're not pricing in or that we don't see. Well, I'll put forward a thesis and you respond that it's very difficult to outrun multiple contraction. You can perform really well in a market, but if there's flows out of the market into another market, you can double your earnings. But if the multiple on Brazilian stocks goes from 20 to 10, your stock's flat even after doubling your earnings. What I perceive as a risk, and this is some of my political bias coming through, is that the rule of law and the rules by which companies get to play by seems to be one offs now. It's no longer. A lot of companies are now subject to a certain amount of political risks that they weren't subject to before. And there's some evidence, I believe, that we're potentially going to exhibit after 17 years of multiple expansion, multiple contraction, in that every company now faces some existential risk around in the S and P around what I'll call this multiple contraction. Your thoughts?

Steve Eisman (29:51)

I don't agree. One thing I've come to as a conclusion about markets over the many years I've been doing that is that they're completely amoral. Not immoral, amoral. They're completely different. Everything that you, that you just mentioned is you would think that they should care about. They don't care about that. What they care about is are you going to beat the quarter? Are your returns going higher? What are your margins doing? If something President Trump does actually impacts those numbers, then you're going to get multiple contraction. But as long as what happens politically doesn't impact margins, revenue growth, earnings per share growth, the market don't care.

Ed (30:36)

But what about stability? I mean, I think the argument from, from, I don't know, PED fund managers who are taking it out of America is that we just, we don't know what's going to happen here. We want some certainty, we want some stability.

Steve Eisman (30:48)

I think it's nonsense. That's nonsense. Really nonsense. Like I said, I think the markets are immoral. People are talking their political book and, and I don't think the market, I don't think the market cares. I just don't think the market cares. Whether that's good or bad. I just honestly don't think the market cares. I mean, look, I thought in 2007, eight, I thought, I thought people was going on because people were financially being destroyed. The market didn't care all. They only cared when profits went down. That's all.

Ed (31:15)

Wouldn't tariffs be part of that calculation? I mean, if you believe that the tariff policy is going to be reductive to prosperity and maybe political biases are causing people to overshoot that and exaggerate it in their calculations, but wouldn't that still be part of the calculus?

Steve Eisman (31:34)

It would be part of the calculus, but at least so far,

Ed (31:38)

I think

Steve Eisman (31:39)

everybody, you know, the funny thing I think about it is we all went to college, we all took Econ 101. You know, economics is, as a, as something you learn in college is very powerful. You know, they put these graphs up, they put these numbers up and you basically walk out and think, well, they got to be right because, you know, there's so many numbers. How could they possibly be wrong? And, you know, one of the things that we all learn in econ 101 is tariffs are bad, destroys the economy, you know, yada, yada, yada. And I think that's. And that's why the market went down between last year, between late February and April 9th. And then it turned out it wasn't so bad. It wasn't that bad. And so the market went back up. So, you know, until now there's some, there are some sectors where it is hurt, you know, like the Staples group, you know, it hurt. And so that's one of the reasons why Staples performed very poorly last year, because they had mar. They had actual margin compression on their products. But other than a couple of subsectors, it hasn't really seemed to have shown up very much. The US economy still grew last year. The whole, you know, the thing that drove the U.S. economy last year was AI investment.

Ed (32:46)

Right?

Steve Eisman (32:46)

And that's what's still driving the U.S. economy. That's why I'm so focused on it. Because if there is a real slowdown, there's no question in my mind if you could give me a day. And so on this day, it became very, very clear that AI investment growth was going to get cut in half. I tell you, we're going into a recession. That's how much the US economy is dependent upon that.

Scott Galloway (33:09)

So I'm trying to figure out some potential trades here. If you think that Iran is a bit of a, I don't know, I don't want to say a nothing burger, but isn't going to have nearly the impact we think it might. We've seen energy stocks go up because of the anticipation that the Straits of Hormuz might be more impaired for an extended period of time taking oil prices up, taking profits of oil companies. Is that a potential short right now? And also on the flip side, so I agree with you. I look through the numbers of Salesforce, ServiceNow, Adobe, I could see absolutely no evidence of why their stocks were down 3%, much less 30%.

Steve Eisman (33:47)

I'm glad you said that because I thought I was having a. I thought I was going crazy.

Ed (33:51)

I bought those three names. Yeah.

Steve Eisman (33:54)

Who's Gunsty?

Ed (33:55)

It hasn't been, it hasn't been great, but I'm still holding strong.

Scott Galloway (33:59)

I'll go to a second tier of why everyone's saying, well these prompts could put the businesses out of business. I'm like, okay, only 10 to 20% maximum of their total top line revenue goes into technology. Meaning that 80% of the value they offer is not the technology that AI theoretically could replace. It's client management, UI relationships, debugging. So the whole thing, it strikes me as a massive overreaction to fears that if the worst fears play out, it still doesn't. I just can't see anyone stripping. I've been using Salesforce at every company

Steve Eisman (34:37)

I grew and you can't see stripping Salesforce out of your company. You just can't imagine it. It's too difficult.

Scott Galloway (34:44)

Yeah, these companies are very good at embedding themselves in your company. And the idea that all of a sudden I'm going to task somebody with coming up with prompts to replace Salesforce. Anyways, talk to me about the thesis around going long the SaaS companies and going short the energy companies.

Steve Eisman (35:04)

Well, let me first say I don't trade. I am not a trader. I'm not a medium term trader, I'm not a short term trader. There's certain things that I'm good at and being a trader is not one of them. So I mean what I'm better at is picking, you know, long term ideas, both long and short and basically sticking with them. If I was trading, I think energy stocks or as a trade will be lower in a couple of months. That I agree with the software one

Scott Galloway (35:34)

is

Steve Eisman (35:37)

I'm tempted from my own personal portfolio to buy some of these software stocks. I'm too afraid. It's like catching a falling knife. You know these things go down on like that thing that happened last week, that, that fantasy story that's. I forget the name of the Trini. That was like, you know, that was like reading Arthur C. An Arthur C. Clarke novel, you know that it was no better than that. It was a fantasy story. The person who wrote it, just concocted some stuff together and everybody freaked out. But the narrative on software stocks is now so bad. And the problem with buying them is like I said before, they've gone down on good news, bad news and mediocre news. So what's the data point that's going to get people to say, wait a second, there's a lot more here in terms of software than just making software? Maybe it's just time, but there's no data point I think that you could point to that's going to change the narrative. That's the problem with buying those stocks. But it's tempting to start to think about buying them.

Ed (36:53)

Something I've wondered, Steve, is I think a lot of us have watched the Big Short and a lot of us are moved and inspired by your story. And this is just ubiquitous across all individuals who are interested in the markets, who are investing in the markets. Everyone knows about the Big Short. Something I wonder is, I wonder if your story made everyone want to be the next Steve Eisman.

Steve Eisman (37:22)

So, by the way. So I had a very funny line on TV a few months ago where I said part of the problem here. I'll just repeat it because it's a good one. I said part of the problem here is that, you know, I once predicted the end of the world and I have no interest in predicting it anymore. It was not exactly a pleasant experience. But everybody, people want to predict the end of the world because they want to be me. And I got news for them all. The role of Steve Eisman is already taken. But I think it's funny, but there's truth with this. People want to be the person who predicts the next end of the world. Let me say thank you to all those people. Listen, it wasn't such a pleasant experience the first time around. It was very aggravating and a lot of very anxiety producing. But for some reason people just want to predict the end of the world all the time. It's also like there's this whole thesis out there that bitcoin for a while had this thesis which unfortunately for bitcoin doesn't act like that. But the thesis that bitcoin people had was that, you know, we're all gonna, the whole world's gonna end. Your current, you're not gonna be able to buy anything in the store with your dollars, so buy bitcoin. That was like basically the thesis. And it actually turns out that bitcoin doesn't act like that at all. It just goes up when NASDAQ goes up. And it goes down when NASDAQ goes down. But you know, that end of the world thesis has been predicted in one form or another for the last 40 years. You know, I remember in the 90s, Pete Peterson was making the same claim, and nobody ever steps back and says, wait a second, this claim has been made for 40 years. Why hasn't it happened? And I actually find that more interesting. And I think the reason why it hasn't happened is that. And this is where what people don't know about the financial system is basically everything. The entire financial system of planet Earth. It's not just that the dollar is the reserve currency of the world. The entire financial system of planet Earth runs on Treasuries. You've got a $3 trillion overnight repo market that purely functions on Treasuries. And so the reason why the dollar hasn't had a demise is because there's no alternative in terms of the financial system to Treasuries. If you were to say to me, this product, whatever it is, Chinese bonds, whatever, is a real liquid alternative to Treasuries, I would tell you, okay, now I can start worrying about the dollar. But until then, I think that argument is academic.

Ed (40:10)

I think the question then becomes, because you're one of the people who actually. One of the few people who actually did once predict the end of the world, and you got it right. And so the question then becomes, what was different about that prediction versus all of the other predictions, which, as you point out, are all quite reasonable and compelling, whether it's what could happen in the private credit markets, whether it's what could happen to the fiat, fiat currency and the current system of the hegemony of the dollar and Treasuries. I mean, all of these different questions that I'm always reading. I'm like, I wonder which one's going to be the next 2008. How do you know?

Steve Eisman (40:50)

Well, the difference is that there's no data. So if you want to be one of those people who says the world's going to end, fiat currency is going to end because governments are spending too much money, that is the beginning, the middle and end of the argument. There's no other data point. Whereas when you were talking about the subprime crisis, you got monthly data that the consumer was deteriorating. And then as you dug further, you realized that this paper was owned by systemically important financial institutions literally all over planet Earth. So if the paper kept getting worse and worse and worse, there were going to be massive losses all over the place. That was the story and you could track it every single month. When you're talking about some of these other thesis, whether it's private credit or fiat currency going back to private credit again, the only thing I can actually say is now it's a $2 trillion market, it's grown enormously and there are a couple of credits, Tricolor first brand and this new one in England. Mfs that have gone bad but in terms of the size of the entire market are still pretty small.

Scott Galloway (42:10)

Just along the lines of the deficit spending 7 trillion a year on 5 trillion in receipts. Do you see that as an existential risk? And if so, how does it play out in terms of a potential trade?

Steve Eisman (42:23)

I don't see it as an existential risk at all. I think the U.S. debt to GDP right now is 125%, something like that. Japan's at 240. And Japan has had lower rates than we have had for the last 30 years. So again, I come back to the point that I made before, which is as long as the entire global financial system runs on Treasuries and there's no alternative, I don't see the deficit problem as a problem. If there was a real alternative so that that major money could go elsewhere, then I'd be worried. But until that happens, I just don't see it as I see it as an academic fear. And by the way, the whole fricking world always wants me to predict the end of the world. So it upsets people when they bring up these issues and they feel very passionately about them and I sort of poo poo them. People get upset because they're always. Sometimes when I go on television, they're literally begging for me to predict the end of the world. I'm going to say, no, the world's not going to end. It's sort of funny.

Ed (43:37)

It's because we want the click, Steve.

Steve Eisman (43:39)

Yeah, I know, I understand. All right, listen, the world's going to end there.

Ed (43:42)

You can use that. We'll be right back. And for even more markets content, sign up for our newsletter@profgumarkets.com Subscribe.

Steve Eisman (43:58)

Foreign.

Scott Galloway (44:03)

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Ro Khanna (45:09)

So everyone knows our politics are divided. There's left versus right and dividing lines on age, gender or race. But maybe our biggest divide in our politics is isn't about identity at all. It's insiders versus outsiders. At least that's what Congressman Ro Khanna would say.

Scott Galloway (45:26)

The real issue is two tiers of justice in America. The real issue is people with power and wealth using it to be above the law and escape even investigation or prosecution.

Ro Khanna (45:37)

And it's only gotten more noticeable in recent months as issues like the Epstein files and artificial intelligence have seemed to pit the elites against everybody else. California Congressman Ro Khanna takes on the Epstein class today. Explain in your feed every weekday and now on Saturdays, too.

Ed (45:59)

After decapitation strikes against Iran's leadership, what can we expect next in the escalating war? The big question is if there is going to be a next strongman in Iran, what kind of strongman will that person likely be? I don't think that there's going to be another powerful cleric supreme leader. I'm John Finer. And I'm Jake Sullivan and we're the hosts of the Long Game, a weekly national security podcast. This week we sit down with Kareem Sagapour to discuss what to expect in this next phase of the war against Iran. The episode's out now. Search for and follow the Long Game wherever you get your podcasts. Foreign we're back with Property Markets. So just looking at 2008 again, some one of the differences that you you point out here is that back in 2008 there was data that was actually indicating that there was a real systemic problem here that was going to be genuinely destructive to the markets and to the economy. Right now what we have are a lot of narratives. We have these think pieces on Twitter that are portraying kind of compelling stories, but they're not really providing the data saying, look, it's happening in Real time.

Steve Eisman (47:10)

What I actually find fascinating until whatever correction we're having right now. Let's go back to last year when the market was up a lot. What's amazing is you have two contra narratives going on in the market. You had the stock market going up, everybody's rah, rah, rah, Rah, NASDAQ, AI, etc. So everything's good. And then you had gold going to $5,000 because fiat currency is going to end now. The two cannot occur. They cannot live for very long together. And yet it's like there were two different worlds of investors on two different sitcoms that don't talk to each other and they were operating completely independently of one another. One basically predicting the end of the world and one basically saying everything is fine. And that was, I think, one of the more fascinating things about last year,

Ed (47:59)

100% and the polarization that we're seeing among investors right now is, is a whole other new paradigm unto itself. But when I look at and read about 2008 and try to understand it, something I don't really understand is I'm kind of an efficient market hypothesis believer. Like I generally believe I'm not. So I guess this is the question. It's like, how is it that the data was there and no one knew except for you?

Steve Eisman (48:31)

That's not a fair statement.

Ed (48:32)

Okay, sorry, Okay.

Steve Eisman (48:35)

I mean, it's sort of a fair statement, but it's not a fair statement. First of all, it's not like I'm the only person looked at the data that is definitely not true. I looked at the data, but the entire securitization fixed income world looked at that data like Moses coming down from Sinai with the tablets every month. I mean, that world, that data would come out like mid month over two days and that market stopped. Literally. There was no trading done for two days while people poured over that data like it was a fricking Rosetta stone. So the statement that, and here's where I disagree with the efficient market thesis. The information was there. The entire fixed income world had that data. They just interpreted it wrong. Now they saw the data getting worse. It's not like they said to themselves, oh, the data is getting better. The data was not getting better because they had made so much money in that market for so many years and they basically had. At the end of the day, you could boil down that entire market down to one assumption, and if that assumptions held, they would have been fine. And that assumption was that housing prices have not gone down in the United States on a national basis since World War II. And because housing prices have not gone down on a national basis since World War II, they can't go down on a national basis. That entire market rested on that assumption. So as long as the data got worse, as long as housing prices still went up, they figured still there'll be losses. Big deal. What they didn't see, because they didn't do forensic investigating of the mortgage market, was that the underwriting standards had deteriorated to such a crazy extent that people were getting loans to buy homes they couldn't even afford the first payment. And that eventually took housing prices down. And so I think housing prices in the United states went down 20 to 25% from point to point. So when you layer that on top of all the delinquencies and repossessions, that market imploded. But they were not set up intellectually to accept that until it was too late.

Ed (51:00)

Would it be fair then to say that where we mess up isn't that we just don't see the data, but when our careers and our livelihoods depend on us interpreting the data incorrectly?

Steve Eisman (51:15)

Yes. I think the hardest thing, one of the hardest things for human, all human beings, Me too. To deal with, are paradigm shifts. You know, you. You exist in a paradigm that's been around for a very, very long time. Your whole career is based on that paradigm. You've made a lot of money in that paradigm. And then it turns out that the paradigm is either changing because of technology, or maybe the paradigm was actually wrong because it was based on continuously increasing leverage, which is what the financial services industry's paradigm was based on. Human beings have a tremendously difficult time dealing with paradigm shifts. Tremendous. They don't. It's like. It's like a nightmare. They don't want to deal with it.

Scott Galloway (52:03)

Stephen, what did the movie get wrong? What was, you know, it's a dramatic interpretation or it's meant to be entertaining. What was exaggerated to the upside or the downside? What does the film get wrong?

Steve Eisman (52:19)

I'll tell you what, I thought it got wrong, but it turned out they got right. When I watched the movie the first time, and it came out in December. January, December 2014, January 2015, I thought that the character Steve Carell played was great. It was an incredible portrayal. He should win an Academy Award, God willing. But that. Surely I wasn't nearly as angry as he portrayed me to be. That was my conclusion. And then what happened was way back in 2010, President Obama had created this financial crisis commission, and I was one of the people interviewed I completely forgotten about it. And In April of 2015, the financial crisis Commission did a data dump. They literally disclosed every single piece of paper that they had. And so I got a whole. I was able to read the transcript of my interview. And when I finished reading the transcript, I said to myself, no, Steve Carell, he got it right. He got it right.

Scott Galloway (53:31)

You are that angry.

Steve Eisman (53:32)

I was, yeah.

Ed (53:33)

I got questions about the movie, too. My favorite scene was the sushi scene. You, Steve Carell playing you, is talking to this guy who's explaining how the whole system works. And he's like one of the worst guys you've ever met. And he's like eating his sushi.

Steve Eisman (53:47)

I feel sorry for that guy. He's not one of the worst guys anybody's ever met. He was just one of the people who managed cdo' and he had the misfortune of having dinner with me.

Ed (53:58)

Well, I love that scene. I love the way the guy conducts himself. My question is. Actually, I have two questions. There's the sushi scene, and then there's also the scene with the real estate brokers. And they're like, you don't understand. He's not confessing, he's bragging, right? When you look at the markets today, who are the kinds of people who reflect both the sushi CDO guy and also the real estate broker who wasn't confessing, he was bragging?

Steve Eisman (54:27)

That's a great question. I think the private equity guys are the guys who have had it great for the last 15 years, and I think, you know, may turn out that they're right, that there are no problems and, you know, their stock prices will go back up. But I think they're all right now in a bit of a state of shock that people could be questioning what they've been doing for the last 15 years. So that's who I think that sort of mirrors in a way.

Ed (55:01)

Steve Iseman is an investment analyst and portfolio manager with decades of experience in financial markets. He's best known for his pivotal role in predicting profiting from the 2008 subprime mortgage crisis chronicled in the Big Short. Steve founded and managed Emyce Partners, a long short equity fund focused on fundamental analysis. In 2014, he joined Neuberger Berman as managing director and portfolio manager. Currently, Steve Isman is the host of the Real Eisman Playbook, a weekly financial podcast. Steve, this was a pleasure. We really appreciate your time.

Scott Galloway (55:30)

Thanks very much. Nice to meet you, Steven.

Steve Eisman (55:31)

Thank you. Real pleasure.

Scott Galloway (55:42)

Ed, what'd you think?

Ed (55:43)

I thought that was fascinating. I Think my. I'm always trying to understand because I wasn't really around in 2008, or I was, but I didn't know what was happening. I was just playing football and playing video games. So I don't really understand that time. But I am always fascinated, like, how did the world get it so wrong? And how is it that this handful of guys were able to get it so right, Steve being one of them, Michael Burry being another. And I am constantly asking myself, like, when is that moment going to occur again? And it's not always clear to me. And so I think what my biggest takeaway is his description that the reason that it happened was because people were so dead set on misinterpreting the data that they didn't even realize that they were misinterpreting it. It was so essential to them for their lives, for their careers and for their professions to not conclude what probably should have been concluded when they looked at the numbers. And I feel like that's a kind of helpful framework and difference for understanding what the next big misunderstanding, what the next big crash might be. And so I guess my takeaway is I'm now looking for that. I'm looking for the, the areas in which people are intentionally misinterpreting things because they have to. Because if they were to interpret it another way, well, it would be a huge inconvenience to them, to their companies and to their careers.

Scott Galloway (57:17)

I do think that the war in Iran is about to be markets, nothing burger. I just don't think. I think there's an opportunity. I think oil is going to be less expensive in a month than it is now. And it strikes me, if you listen to the Trump administration trying to do this improv kabuki dance of trying to find already a way to declare victory and leave as the Republican Party. This is the issue. It appears that the Republican Party is finally turning on him around. He's already saying, oh, we wanted to do the following things. These are our objectives. It's weird that they. It's clear that they hadn't thought through what their objectives are, but they laid out a series of objectives. It's basically, as far as I can tell, giving them a rip cord to just get out. And the result will be, I think that energy prices will stabilize. And you already see in the markets that if you look at what's happened in metals, which are kind of a risk off, they've already declined, they spiked and now they've declined again because it appears that they're not as Freaked out.

Ed (58:31)

I actually disagree with that. Maybe we'll talk about it another episode, but I feel like pulling the ripcord, getting out of there. And now what is the big question that I feel like we're all assuming or we're being maybe overly optimistic that now we've reached stability, we've gotten rid of the boogeyman, we've gotten rid of Khomeini, now we're good. And to be clear, I'm not a geopolitical expert. I'm not a military expert. I don't know. But I do think that there is. I'm a little bit struck by the sense of confidence that investors seem to have that now we're stable, now it's somewhat solved, and I just don't feel fully convinced of that yet.

Scott Galloway (59:13)

I'm not sure it's stable or solved. I just, I think people, whenever they hear war and, and 20% of oil flows through the Straits of Hormuz, think that oil's going to spike. And if you look at some of these big geopolitical actions, the, the market's decline is, is shallower and shallower because every time they seem to snap back faster than people think they're going to, and it doesn't appear to be, you know, there's always like, okay, it could be World War iii. Yeah, it doesn't feel like it. Unless there's Chinese troops involved or nuclear weapons involved, it doesn't feel like that. And it strikes me that the. I'm not making a judgment whether it's a good or a bad idea, but the Trump administration has already signaling they want, you know, they're 48 or 72 hours in, and they've already signaled that they want to, they want to declare victory and leave, or that's how I read their most recent statements, which means that, you know, I don't see what would be in Iran's interest to try and destabilize things more at that point. I think they would rather just survive, get through this, hunker down, and then, you know, go from, go from there.

Ed (60:27)

Well, that, to me, is the wishful thinking.

Scott Galloway (60:29)

For me, that's not wishful thinking. I would like to see the, the empire of Persia reemerge and have it be more neutral or pro West. I don't, unfortunately, I don't think, I think the incompetence, and I'm becoming geopolitical now, but the incompetence demonstrated by the Trump administration without even thinking through the ability to answer why, why now? And what's the off Ramp. They clearly, they clearly hadn't thought through these issues and they've been forced to answer them real time. And we look like, in my opinion, he looks like a fucking idiot. America's lost a lot of credibility. And the real, in my opinion, the opportunity for really productive change here is probably going to come and go as quickly as we attacked and then left. I just don't think this is going to have much impact on the market over the medium or the long term, for better or for worse. But more importantly, back to me. Back to me, Ed. So I know you're wondering what I was doing in 07 and 08.

Ed (61:22)

I was. I want to hear this.

Scott Galloway (61:24)

Yeah. Thank you. It's like we're on a date and you're pretending to be interested in me. So I was reinventing myself yet again after the dot. After the DOT bomb implosion. I'm like, okay, this Internet thing maybe isn't working out for me. And I moved to New York and I was a professor making 12,000 a year. And I thought, I need to make some money. So I thought, okay, I'm angry. And I just got through a proxy fight at my old company, Red Envelope, so that I know I'll be an activist investor. And I raised a bunch of money and I bought a big stake in Gateway Computer, made a little bit of money there. And my capital sponsor was a guy named Phil Falcone with Harbinger Capital. And Phil was one of the. He's probably the least mentioned of the three or four hedge funds. The guy that got all the mention was a guy named John Paulson. But basically, Phil made Phil bet a billion dollars on these credit default swaps, and he made 6 or 7 billion. And then he was kind of the golden boy. He made this huge Bet and his AUM went from a billion to 20 billion. And I used to come in and pitch consumer and tech ideas. And he said, I'm going to give you an office here, and you can come in one or two days a week and just pitch me and the team on ideas. And then basically the whole world imploded. And what was it, 08 and 09. And my son had the poor judgment to come marching out of my girlfriend. And I remember that was a very stressful time. And I convinced him to give me $600 million to buy, become the largest shareholder in the New York Times. And I was going to say, okay, you need to divest of all these stupid assets you own. You own the seventh tallest building in America, your headquarters, 70% of the Boston Red Sox, all these shitty little newspapers about dot com, and we're going to double down on digital. And I thought the thing was under price of 15. And within four months of making this massive purchase and going on the board, basically forcing my way on the board, the stock was at three bucks a share. And I managed to lose a half a billion dollars or $400 million of other people's money in like four or five months. Just about the time I decided to propagate. And it was. That was. That was such a stressful time. And people of your generation, you know, I hear all these. I don't call them sob stories, but. But fears around jobs getting out of college and everything. And the economy's not, you know, market's not going up. When you're sitting in a board meeting of the New York Times, I'm not exaggerating. They're like, if we don't raise money in the next 60 days, we're declaring bankruptcy. Because our advertising was $300 million a month. You know, January, February, and in March, it's going to be 22 million. The great financial crisis. People just stopped advertising. They just stopped spending. It was like. And it was like, okay, if we don't figure out a way to raise money, we ended up raising a bunch of money from Carlos Slim, of all people. If we don't raise money fast, the cousin, Arthur Sulzberger, he's going to be the cousin. The last New York Times, it's going to be bumped into bankruptcy, and we're going to lose it. And every company I was on the board of involved in, it was just like. I mean, you don't realize how fast things can flip. And people your age have never lived through that. And they get. I don't want to say they're not resilient, but they think, oh, my, Youth Unemployment's at 10% right now. That's a tick up. But it's not. Historically, that's about average. That's not. And when I got out of business school in 92, only 40% of us had jobs at graduation. Anyways, my point is, I look back on it, it was such a wild time. It was so strange to be constantly on board calls trying to figure out, are we going to go out of business here of all these boards? But I was working at this hedge fund of this guy who got very famous making this incredible short trade and then effectively, slowly, over the next few years, went out of business because he had this incredible risk appetite. And eventually that catches up with you. But I was living in New York, had two babies, and lost almost everything again. Yeah, that was a very stressful time for me, Ed. I'm like, I can feel my heart, feel my blood pressure going up just thinking about being 40 and broke again with. But now having, like, kids that are going to demand that I feed them and send them to school.

Ed (66:06)

Not anymore, baby.

Scott Galloway (66:07)

Not anymore. We'll see.

Ed (66:08)

The podcast era has begun.

Scott Galloway (66:10)

Yeah. Problem is I'm shrinking again. I don't know if that's an omen of bad things to come. Read us out, Ed. I'm gonna go start drinking.

Ed (66:22)

This episode was produced by Claire Miller and Alison Weiss and engineered by Benjamin Spencer. Our video editor is Horrible Jorge Carty. Our research team is Dan Shalon, Isabella Kinsel, Kristen O' Donoghue and Mia Silverio. Jake McPherson is our social producer. Drew Burrows is our technical director, and Catherine Dillon is our executive producer. Thank you for listening to Profg Markets from Profg Media. If you liked what you heard, give us a follow and join us for a fresh take on markets on Monday.

Scott Galloway (66:56)

You have me in kind.

Steve Eisman (67:02)

Reunion as the world turn.