The $1.5B Insider Trade Before Trump’s Iran Post — ft. Anthony Scaramucci

Summary

Prof G Markets – "The $1.5B Insider Trade Before Trump’s Iran Post"

Date: March 26, 2026
Host: Ed Elson (Prof G), with guest segments featuring Anthony Scaramucci and Steve Eisman

---

Episode Overview

This episode of Prof G Markets explores two high-stakes financial stories shaping markets and ethics in 2026:

• The explosive allegations of $1.5 billion in insider trading tied to Trump’s announcement of negotiations with Iran, featuring a candid interview with investor Anthony Scaramucci about the extent and normalization of political insider abuse.
• The brewing crisis in private credit markets, with “Big Short” investor Steve Eisman breaking down why retail investors and the wider economy may face a rough road ahead.

Throughout, the episode maintains Prof G’s signature blend of sharp market analysis and moral critique—questioning not just how money is made, but who benefits and who pays.

---

Section 1: The Iran-Linked Insider Trading Scandal

Featuring Anthony Scaramucci
Main Theme:
A shocking $1.5 billion S&P futures trade and $192 million in oil futures trades occurred minutes before Trump’s Iran announcement—raising urgent questions about corruption, legality, and the gutting of enforcement agencies.

Key Discussion Points & Insights

• Details of the Suspect Trading Activity

  • Unprecedented timing: Massive positions were taken in the S&P and oil futures just minutes before Trump’s public disclosure about “productive conversations” with Iran—a move that netted $60 million profit almost instantly.
  • Senator Chris Murphy called this “mind-blowing corruption” and called for answers on who placed the trades.
  • The Financial Times highlighted separately $580 million in crude oil trades just 14 minutes prior to the announcement. (02:18)

• Historical Pattern of Political Insider Trading

  • Scaramucci connects this incident to a history of “exponential” insider trading around Trump-era events:

    “They got short the market prior to the announcement … Trump came down from Mount Evil like Orange Moses with the big tablets … a week later, prior to Trump saying he was pulling back the tariffs, they got long the market... This is another example of it. But it’s been very consistent throughout the administration.”
    (03:43 – 04:31, Scaramucci)

  • He references previous suspect trading around tariffs, rare earth mineral tweets, and war policy shifts.

• The Systemic, Bipartisan Nature of Corruption

  • “It’s not just Trump. … Nancy Pelosi, she’s traded her account better than any hedge fund manager that I’ve ever met in my life, myself included.”
    (05:36, Scaramucci)
  • Scaramucci describes the problem as “rampant” and “bipartisan,” with both major parties’ members engaging in trades around sensitive policy.

• Scale and Social Impact

  • Profits from these trades dwarf earlier insider scandals (“Martha Stewart … $45,000 … five months in a federal prison … This is hundreds of millions of dollars”).
  • Scaramucci warns of social consequences:

    “When you have corruption like this, at this scale, if you’re a young kid … you’re seeing a concrete ceiling. … It creates a tremendous amount of cynicism in a society. So I’m heartbroken by it.”
    (06:32, Scaramucci)

Memorable Quotes & Moments

• On Law Enforcement Failure:

  “The head of the enforcement area … she resigned last week because she said she can’t get the agency to focus on this… We sent Martha Stewart … this is hundreds of millions of dollars.”
  (04:31, Scaramucci)

• On Hopelessness and Cynicism:

  “Nothing’s gonna happen. And they’re going to make some more tweets and trade the oil markets … This stuff is reprehensible, but I don’t think it’s changing.”
  (07:30, Scaramucci)

Notable Segment Timestamps

• [02:18] – Ed Elson introduces the scandal and context
• [03:43] – Scaramucci details the pattern of insider trading
• [04:54] – Discussion of Martha Stewart’s case
• [05:36] – Bipartisan scope (Pelosi, others)
• [06:32] – Societal consequences

---

Section 2: Enforcement, Cynicism, and the Two-Speed System

Deep Dive into Enforcement Breakdown

• Margaret Ryan’s Resignation & Agency Paralysis

  • The top SEC official, Margaret Ryan, quits in frustration: “These are easy to tag … you can find out immediately who’s doing this … and she’s been told by her bosses that she cannot do that. So I think that’s reprehensible.”
    (09:34, Scaramucci)

• U.S. History of Corruption and Accountability

  • Scaramucci recalls past scandals (Teapot Dome, Abscam) but stresses the difference: “There was some level of law enforcement and some level of justice… There will be repercussions… [which] creates a deterrent for people.”
    (10:24, Scaramucci)

• Modern Cynicism & Congressional Immunity

  • “The Congress has a 14% approval rating. … However, the individual congressman has a 95% incumbent rate. Their narrative … is, who cares man? I’m going to do whatever the hell I want… and I’m going to get reelected.”
    (12:04, Scaramucci)

---

Section 3: Will This Become a Political Issue?

Prof G asks if this scandal will catalyze reform or electoral backlash.

• Long-Term Futility:
  • Scaramucci, blunt as ever:

    “So I don’t. And it should, but I don’t … [In 2012] the Congress said, oh, we’re gonna pass something called the Stock Act … There was an eight-month period where Congress was handcuffed and couldn’t trade. Then by voice vote, they quietly put it back in…”
    (14:06 – 14:42, Scaramucci)

  • Notes Senator Chris Murphy’s current “Bets Off Act,” but is deeply pessimistic: “If it does pass for political purposes … as soon as the midterms are over, they’re gonna put it back on. This is why people don’t like them.”
    (15:10 – 15:30, Scaramucci)

---

Section Conclusion: The Bleak Cycle Continues

“It’s very depressing. We could talk about it for hours… Anthony Scaramucci, always appreciate it.” (15:30 – 15:40, Ed Elson)

---

Section 4: Private Credit Crisis Unpacked

Featuring Steve Eisman

Main Theme:
A technical but urgently relevant breakdown of turmoil in private credit markets, how illiquidity and leverage are backfiring, and why ordinary investors should be wary.

Key Discussion Points & Insights

• What’s Happening?

  • Major fund managers (Ares, Apollo) are capping withdrawals as redemption requests soar past proscribed quarterly limits (5%).
  • Ratings downgrades (e.g., Moody’s downgrading a KKR private credit fund) reflect swelling concerns over the quality of loan portfolios.
    (19:15 – 21:09, Ed Elson & Steve Eisman)

• Why Did Retail Money Go In?

  • Private credit, once institutional, was pushed to retail for growth. The “illusion of liquidity” was sold to non-professionals—liquidity that fails under stress.
    (21:09 – 22:11, Eisman)

• Credit Cycle Risk

  • The U.S. hasn’t experienced a real credit cycle since 2008. Private credit has bloated to ~$2T/year, particularly via leveraged buyouts in software.
  • 25% of direct lending backs software companies acquired during zero-interest-rate years; many will need refinancing at much higher rates.
    (24:55 – 27:44, Eisman)

• Incestuous Structure

  • “Most private credit funds are run by private equity companies. … What you have is private equity raising money in its private credit funds to lend to itself to go buy the companies that it wants to buy. … It’s only because it is [circular].”
    (25:50, Eisman)

• Potential Outcomes and Contagion

  • “If even the rating agencies admit there's a problem, you know, problem.” (24:54, Eisman)
  • Tightening lending can trigger recession; since banks are well-capitalized post-2008, systemic risk is lower, but losses and economic pain are likely.

    “It’ll be a garden variety recession … people will lose jobs … but you’re not going to be worried about JP Morgan or Citigroup … It’s unimaginable to me at this point.”
    (32:09 – 34:17, Eisman)

• Retail Pain

  • Withdrawal caps feel like a bank run—causing panic: “It’s people with money who are upset that they can’t get their money back. I’d be upset too.”
    (31:31, Eisman)

Notable Quotes & Segment Timestamps:

• [20:15 – 21:08] – Introduction to the crisis
• [21:09 – 22:44] – Retail “illusion of liquidity” problem
• [24:54] – Moody’s downgrades and warning signs
• [25:50] – Private credit’s circular logic (private equity funds lending to themselves)
• [27:44 – 28:55] – Lending standards tighten; risk of recession
• [32:09 – 34:17] – Why this won’t be 2008, but still matters

---

Section 5: Broadening the Context—A Culture of Corruption

Ed Elson commentary and wrap-up

Insightful Connections

• The Iran scandal is the tip of an iceberg:
  • There's a historic pattern: “More than a dozen government officials and congressional aides made big stock market trades before Trump came out with his first Liberation Day announcement…” (34:50)
  • Insider trading in crypto, defense stocks, and real estate—all tied to key policy events and family members—has become normalized.
• Enforcement is broken:
  • DOJ, SEC, FBI lack will or capacity to challenge political elites: “The criminals are now in bed with the cops, which leaves us with one option. We have to vote them out.” (38:20)
  • Offers this as a Democratic campaign opportunity—run on prosecuting insider traders.

---

Highlighted Quotes – "No Mercy, No Malice"

• Scaramucci:

  “Trump has taken it exponential with his team… but Nancy Pelosi … has traded her account better than any hedge fund manager I’ve ever met in my life.” (05:36)

• Scaramucci:

  “Nothing’s gonna happen. And they’re going to make some more tweets and trade the oil markets… this stuff is reprehensible but I don’t think it’s changing.” (07:30)

• Eisman:

  “What made 2008 as calamitous as it was was that not only was there a recession, but there was an actual fear that the entire banking system was going to collapse... That’s planet Earth burn situation. … The U.S. banking system is better capitalized than it has ever been in history. Hard stop.” (32:09 – 34:17)

• Elson:

  “Billions of dollars have been made off of insiders’ connections to the President. But the more honest way to put it is that billions of dollars have been stolen by insiders connected to the President.” (after 34:44)

---

Key Takeaways & Final Thoughts

• A new normal of political corruption: Trading on sensitive information surrounding national policy decisions continues at historic scale and with unprecedented transparency.
• Bipartisan rot: Both parties’ elites are implicated; earlier reforms (Stock Act) have proven hollow.
• Broken enforcement equals growing cynicism: Regulatory agencies are hamstrung or co-opted, further eroding hope and trust.
• Private credit market’s fragility: Retail investors face liquidity shocks; a minor recession looms, but doomsday scenarios are unlikely due to stronger banks.
• Civic urgency: Voters and politicians are called to treat this not as “business as usual,” but as a democracy-threatening crisis.

---

For further reading and Prof G’s newsletter:
simplyput.profgmedia.com

Upcoming episode tease:
“Tomorrow, Bill Gurley joins the show.”

---

Summary by Prof G Markets Podcast Summarizer – capturing the episode’s critical analysis and forthright voice, for listeners and non-listeners alike.

Transcript

[Virgin Atlantic Advertiser]

Support for this show comes from Virgin Atlantic. A lot of people dread flying. I've been on some bad flights and I've been on some truly miserable flights. But it's a whole different story when an airline shows up for you and the crew treats you like a vip. Virgin Atlantic offers warm one on one service from the moment you step on board. Its upper class cabin features four course meals. Fully lay flat seats and drinks delivered on demand. Make the journey as exceptional as a destination when you fly Virgin Atlantic. Go to virginatlantic.com to learn more.

[Disney Plus Advertiser]

Zootopia 2 has come home to Disney Plus. Let's go get ready for a new case.

[Ed Elson]

We're victorious partners of all time. New friends Gary the Snake and your last name the Snake Dream Team New

[Anthony Scaramucci]

Habitats Zootopia has a secret reptile population.

[Disney Plus Advertiser]

You can watch the record breaking phenomenon at home. Zootopia 2 now available on Disney Plus. Rated PG. And right now you can get Disney plus and Hulu for just $4.99 a month for three months with a special limited time offer ends March 24th. After three months, Plan Auto renews at $12.99 a month. Terms apply.

[Chef Meilin]

As a chef, I know flavor doesn't begin in the kitchen, it begins on the land. And West Home's Nature led Australian Wagyu is a story written in the landscape of Northern Australia. Cooking is storytelling and West Home Wagyu carries a story of Northern Australia itself. Raw, powerful and deeply authentic. It's a testament to the passion and care raised in the rhythm of Northern Australia. I'm Chef Meilin from ADA Club in Los Angeles and I invite you to visit westhome.com maitland to learn more and taste a story. Only Westholm Nature led Australian Wagyu can tell that's W-E-S-T-H-O-L-M-E.com M E I L

[Ed Elson]

I N today's 77. That's how many people are in Ireland's Navy Reserve, one of the smallest in the world. Here's an Irish joke. What's the difference between an Irish wedding and an Irish funeral? One less drunk Money market met. If money is evil, then that building is hell.

[Steve Eisman]

The show goes on.

[Ed Elson]

The price of nail at once and sell.

[Steve Eisman]

Sell.

[Ed Elson]

Welcome to Property Markets Ed. I'm Ed elson. It is March 26th. Let's check in on yesterday's market vitals. The major indices swung through the day but ended the session in the green. Oil declined, treasury yields fell and finally Meta and Google shares were little changed after the Companies were found liable of negligence in the social media addiction trial. Okay, what else is happening? The Iran war is shining a spotlight on insider trading and Washington may be at the center of it. On Monday morning, roughly one and a half billion dollars in S and P futures were purchased and $192 million in oil futures was sold. That was five minutes before President Trump announced that productive conversations with Tehran were underway. The position netted $60 million. Minutes after the Truth Social post, Senator Chris Murphy called, called it, quote, mind blowing corruption and asked publicly whether Trump, a family member or a White House staffer was behind the trade. Meanwhile, the FT separately flagged $580 million in crude oil futures that traded 14 minutes before the announcement. Okay, here to help us untangle what is going on here, we're speaking with Anthony Scaramucci, the founder and managing partner of SkyBridge Capital. Anthony, thank you for joining us. Please, I know you have thoughts.

[Anthony Scaramucci]

Oh, it's, first of all, it's great. It's great to be on, so. But I want to add to that, if you don't mind. So April 2, 2025, Liberation Day, they put trades on, they got short the market prior to the announcement. You know, when Trump came down from Mount Evil like Orange Moses with the big tablets, okay? They got short the market prior to that divulgement. A week later, prior to Trump saying he was pulling back the tariffs, there was going to be a 90 day moratorium. They got long the market, okay. On October 10th, about an hour before the tweet went out related to the rare earth minerals and the fight that he was starting with China to get short the market, to get short the crypto market. So this is another example of it. But it's been very consistent throughout the administration. Tens of millions, if not hundreds of millions of dollars are being made and, you know, so much so that the head of the enforcement area that's supposed to police this stuff, she resigned last week because she said she can't get the agency focus on this now. We sent Martha Stewart. And so you're young Ed, I think you know who she is.

[Ed Elson]

I watched the documentary, so I know.

[Anthony Scaramucci]

Okay, so for your younger viewers, she had $45,000 of profits that she had to disgorge and she spent five months in a federal prison because they caught her, quote, unquote, ins better trading. This is hundreds of millions of dollars, okay? But there's a bigger problem here for the American people, and that is this is rampant. Trump has taken it exponential with his team. But do you know Who? A Democratic representative is Kelly Morrison. So Kelly Morrison bought Saronic Technologies, a name I didn't know, but she bought Saronic Technologies, which is an autonomous warship company, nine days after the beginning of the war with Iran, Right as the Navy was awarding Saronic contracts. Her office said that her portfolio is managed by a blind trust and an investment manager. And she had no prior knowledge. But Government Watchdog said, hey, whoa. This is a pretty clear conflict of interest. So I'm here to tell your viewers and listeners, Trump has gone exponential. But Nancy Pelosi, she's traded her account better than any hedge fund manager that I've ever met in my life, myself included. You picked the biggest hedge fund managers. And it's not just her, it's bipartisan. Okay, so they're running rampant in Washington with the corruption. As an American, I'm embarrassed by it. As an American, I would like it to stop. The insider trading at the Congress level is legal. The insider trading at the Trump level is probably not legal because it's not Trump himself doing it, but it's people close to him that are actually doing it, and that probably makes it illegal. So here's two things I would say very quickly. Thing number one, if you're a young kid, if you're the younger version of me growing up in the 1970s, Professor Galloway Growing up in the 1970s, we had hope on our side and aspiration. I'm not saying there wasn't corruption ed in the country, but it was veiled. It wasn't this big, it wasn't this dramatic. And when you have corruption like this, at this scale, if you're a young kid, if you're a young Scott Galloway, young Anthony Scaramucci, you're looking up and you're seeing a concrete ceiling. You're saying, okay, oh, my God. There's a two tiered system. There's one tier for those guys, a different tier for us. We're never gonna make it. And it creates a tremendous amount of cynicism in a society. So I'm heartbroken by it. And. But nothing's going to happen. And they're going to make some more tweets and trade the oil markets. You know, somebody got short oil before the president's announcement yesterday where he said, we're getting this big gift from Iran. And it turned out, I guess one of the Thai tankers was able to pass through the Strait of Hormuz as a sign of good faith, which was, you know, lots of oil coming back out of the international markets. And of course, oil went down, and guess what? They did. They closed the short position. So I think this stuff is reprehensible, but I don't think it's changing.

[Ed Elson]

I'm so glad you mentioned all of the previous instances that this has happened, because it seems that everyone is focused on, look at the insider trading as it relates to Iran. And then my mind goes back to, yes, exactly, Liberation Day, when we seems to see the same thing. Then the post Liberation Day. Taco, we've seen this constantly, over and over again. As you say, it's happened on both sides, but the level with which it has been, I guess, shameless. The fact that they don't seem to care at all, the fact that the, the. The kids are investing in these drone companies as well, before we go and launch these attacks on Iran, combined with the fact, as you also mentioned, you made all the points that, that I hoped you would make, which is the SEC director has left because she tried to investigate this stuff and she got scolded by her bosses. And we saw similar things with, with the DOJ as well. And so I guess the question becomes, I mean, how bad has this gotten? And do you think that people are properly recognizing this? Because I see what's happening. This is like the greatest corruption we've ever seen, or at least that I'm aware of. That, to me, is like, it's a cut above just regular political gripes. This seems to me like this is a serious issue that I don't know that people need to at least vote on or at least consider voting on.

[Anthony Scaramucci]

So the woman that you're referring to, her name is Margaret Ryan. Okay. She was just with the SEC for many years, and she basically resigned under protest because she said that she cannot get any enforcement of any of these actions. And by the way, these are easy to tag, and these are easy to geocenter. The tag on the trading. You can find out immediately who's doing all this stuff, and then you can start bringing cases. And she's been told by her bosses that she cannot do that. So I think that's reprehensible. But I want to take you back because you said this is the worst corruption ever. We had the Teapot Dome scandal, unbelievable corruption, but those people got prosecuted. That was at the turn of the century, the 1800s into the 1900s. We had the Abscam case when I was in high school. This is back in the 1980s, where two congressmen were caught on a bribe, where the FBI had a wire on them and they got caught saying, oh, yeah, give Us that money, and we'll change our position on this policy inside the government. And they got caught. So the point I'm making, we have corruption in the country. We have political corruption, banking corruption, all sorts of corruption. But attached to that corruption was some level of law enforcement and some level of justice. I'm not saying it's perfect, but at least there was a supposition in the countries. Oh, wow. Do something wrong like that, that bald face, there will be repercussions. And that repercussion, Ed. Creates a deterrent for people.

[Ed Elson]

Yeah.

[Anthony Scaramucci]

You see what I mean? I'm gonna be speaking at the 92nd y with a guy who got caught insider trading. He wore a wire for the federal government and he stopped a huge insider trading ring in the 2006, 7 and 08 time period on Wall street. That stuff is over, okay? And so it makes the markets unfair. It makes the pricing in the market manipulative. And it's giving a license to these people to do what they want. And, you know, look, the flip side is, you know, the congressmen are gonna say, you pay me $180,000 a year. I can't afford to live. And so I'm gonna enrich myself by doing this. And I wanna make this last point because I need your listeners to hear this. We have this thing called Citizens United, which means people can give unlimited donations to the congressman, right? All political candidates, all policies, unlimited donations. So here's what's going on. The Congress has a 14% approval rating. It's slightly above Kim Il Jong, the North Korean dictator. However, the individual congressman has a 95% incumbent rate. So their narrative to their people is, who cares, man? I'm going to do whatever the hell I want. The money's coming in from big food, big pharma, big business, big wealthy. I'm going to get reelected. And so what do we trade in today? What information am I going to get? You know how many times a congressman has bought defense stocks the day before, two days before the contract is announced, that the appropriations is going to that defense contractor? I mean, it is staggering and it is sad and it is tragic and it's very unfair to the American people.

[Ed Elson]

My question to you before we let you go. I mean, you are in the politics game, or at least you're a political commentator. You have been in politics. I mean, this, to me, seems like it could be the issue going into the midterms and perhaps for the presidential election as well, that. I mean, there are certain issues that are political issues. There are Certain things that are cultural. There are issues with dei. There are. You know, some people believe that tariffs are a good idea, some people think it's a bad idea. But this issue seems to be so brazen and so criminal that it makes me believe that this is probably going to be the ultimate issue. And that is the issue of corruption and, and insider trading and profiting off of being elected into a position of power. As someone who's in politics, do you think that that will transpire?

[Anthony Scaramucci]

So I don't. And it should, but I don't. Let me tell you, let me give you a quick history. Peter Schweitzer wrote about this insider trading stuff in 2012. 60 Minutes did a big story on it. And the Congress said, oh, we're gonna pass something called the 2012 Stock act, which prohibited the use of non public information for trading. And so there was an eight month period of time where the Congress was handcuffed and they couldn't trade. Then by voice vote, they didn't even want to go onto the floor because they didn't want to be seen on C SPAN by voice vote. They called in and said, let's put it back in.

[Ed Elson]

Wow.

[Anthony Scaramucci]

Okay, we're going to vote on putting it back in. Yes, we're voting and putting it back in. So now Fast forward, it's 14 years later and the last 14 years they've been running this racket. So Chris Murphy, you mentioned him earlier in the program, he's a senator from Connecticut. He's trying to come up with something now that's called the no Bets Act. Okay. And he's basically trying to say if we can stop the prediction markets, make it illegal to bet on assassinations or make it illegal to bet on wars. It's called the Bets Off Act, I should say. But in any event, I don't think that's gonna pass. And by the way, if it does pass for political purposes leading into the midterms, as soon as the midterms are over, Ed, they're gonna vote back to get it put, put it back on. I'm just telling you what these guys do. This is why people don't like them.

[Ed Elson]

Exactly. It's very, it's very depressing. We could talk about it for hours, but I've gotta let you go. Anthony Scaramucci, founder and managing partner of SkyBridge Capital. Anthony, always appreciate it. Thank you.

[Anthony Scaramucci]

Thank you. Real pleasure to always be on with you, man. Thank you.

[Ed Elson]

After the break, alarm bells sound off in private credit and for even more markets insights, you can subscribe to my weekly newsletter. Simply put@simplyput. Prof. Gmedia.com.

[Factor Advertiser]

Support for the show comes from Factor. Eating healthy requires time, effort and commitment. The problem? You don't have any of that. So what do you do? Starve? No, not really. Not a good long term solution, but Factor might be a great option. They provide fully prepared meals designed by dietitians and crafted by chefs. Ready in two minutes. No planning, no cooking. With 100 rotating weekly meals to keep things fresh and delicious, Factor provides meals that fit your goals and schedule. No refined sugars, no artificial sweeteners, no refined seed oils. Meals that fit your goals and schedule. Healthier eating and calorie management. Factor sent some people on my team a box and they are raving about it. They said it's delicious, easy to follow instructions. Plus they said it's perfect for busy people who don't have time to cook but want something healthy. Okay, enough of that. Back to work. Head to factor meals.com markets 50 off and use code markets50OFF to get 50% off and free breakfast for a year. Offer only valid for new Factor customers with code and qualifying auto renewing subscription purchase. Make healthier eating easier with Factor. This is advertiser content brought to you by Virgin Atlantic. Ed, a couple weeks back I got you a birthday gift. Not to pat myself on the back, but it was a pretty good one.

[Ed Elson]

It was indeed. You surprised me with Virgin Atlantic upper class tickets to London.

[Factor Advertiser]

So tell us all about it.

[Ed Elson]

It was pretty incredible. From the moment I entered that upper class cabin, I have to tell you, I felt like a vip. Anything I needed, a drink, snack, assistance with the seats.

[Virgin Atlantic Advertiser]

Flat seats.

[Ed Elson]

Flat seats. Flat seats, exactly. Had the four course meal, got my champagne, very delicious. Enjoyed the food and the journey home. The journey home was great. I went to the Virgin Atlantic LHR clubhouse. That's the Heathrow clubhouse. Heathrow Clubhouse was awesome. Got myself a coffee, headed over to the meditation pod that they call the Soma Dome. Kind of felt like a sort of spaceship where you relax and think nice thoughts. So I did that for a little bit. Then we went over to the wing which are these acoustically sealed booths where you could do some work. You could even record a podcast. I didn't do that, but maybe I should have. It was a very enjoyable experience.

[Factor Advertiser]

So Ed, the real question here is, what are you planning to get me for my birthday?

[Ed Elson]

See the world differently. With Virgin Atlantic, flying should be more than just transport. It is part of the adventure. Go to virginatlantic.com to learn more tickets

[Indeed Advertiser]

and lounge access provided by Virgin Atlantic. This episode is brought to you by Indeed. Stop waiting around for the perfect candidate. Instead, use Indeed Sponsored Jobs to find the right people with the right skills fast. It's a simple way to make sure your listing is the first candidate. C According to Indeed data, Sponsored Jobs have four times more applicants than non sponsored jobs. So go build your dream team today with Indeed. Get a $75 sponsored job credit@ Indeed.com podcast. Terms and conditions apply.

[Ed Elson]

We're back with Profg Markets. Private credit is in crisis and investors are rushing for the exits. Ares Management and Apollo Both capped withdrawals at 5% this week after redemption requests at more than 11%. That means investors got back less than half of what they asked for. Meanwhile, Moody's downgraded a fund run by KKR and Future Standard to junk status on Monday, saying the fund's asset quality had worsened more than its peers. The latest wave of fear wiped out more than $10 billion in market cap from Ares, Apollo, Blackstone and KKR on Tuesday. And here to tell us what is going on here, what is driving this turmoil in the private credit market, we are speaking with Steve Eisman, the legendary big short investor, also host of the Real Eisman Playbook. Steve, thank you very much for joining us again on Proftry Markets. We wanted to have you on to talk about this because you were the guy who is telling us about this.

[Steve Eisman]

Yes, I was a few weeks ago

[Ed Elson]

when we had you on that Friday episode and things seem to have gotten even worse. So just remind us what is happening in the private credit markets and what we've learned here.

[Steve Eisman]

So you know, the funny thing is that for my podcasts I do this weekly wrap that I put out every Friday and every week for the last probably two months. I'm speaking about private credit and I just amusing for your viewers. You know, I start writing the rap when I wake up Monday and I do work every single day. And so for the last several weeks, the way it's been written and it goes. And then there was some more bad news about private credit on Monday, blah blah blah. And then I wake up Tuesday and then I added a paragraph and on Tuesday, blah blah blah, and on Wednesday. And so it's absolutely relentless.

[Ed Elson]

Yes.

[Steve Eisman]

So let me. Let's take a step back. There are two issues here. They're related, but they're not exactly the same. The two issues are should private credit have been sold to retail? And I think the answer to that question is mostly no. And we're suffering the ramifications of that right now. And the second issue which is related is are we starting a credit cycle in private credit and how bad is it going to be? So let me address the first question first, and then we'll get to the second question, because every piece of news that you hear is related to that. You know, private credit funds were originally created for institutional money. And that makes a lot of sense because you're talking about long term illiquid loans. And institutions know what they're getting. They're getting a higher yield in exchange for less liquidity. And that's fine. After private credit basically sold their funds to every single institution on planet earth, they looked around and they say, okay, now who do we sell it to? And they said, let's sell it to retail. The problem is that with retail, you have to create liquidity. So what they did was they created mostly what I like to call the illusion of liquidity or semi liquidity. Now all this was disclosed is, none of this is illegal, so no one's going to jail for this. This was all disclosed. And the prospectus is whether the retail investors actually understood what they were getting into, who knows? But no question it was adequately disclosed. All these funds have quarterly caps in their documents. Most of the funds have a 5% quarterly redemption cap. Some have seven, but most have five. And so what's been happening is as for the last year, the news on private credit has gotten steadily worse. And we could talk about where that's happened. And so the redemption notices are universally coming in now above the 5% cap. And with the exception of Blackstone in the most recent quarter, which did honor a 7.9% redemption notice, even though the cap is 5%, everybody else has just honored the cap. That's part one. Part two is that we have not had a credit cycle in the United States since the great financial crisis. And that has bred a tremendous amount of complacency amongst lenders. And we are overdue for a credit cycle. And traditionally, if you know anything about lending history, whenever there is a credit cycle, the place that it takes place almost 100% of the time is the asset class that grew the most. So in the great financial crisis, the asset class that grew the most was subprime mortgages, and that blew up the most. Since the great financial crisis, the banks have not had much loan growth at all. All the loan growth has really been in private credit. Private credit 10 years ago was a $300 billion per year market, and now it's close to a 2 trillion per year market. So you're starting to see cracks in credit. You know, you had this, you mentioned that this KKR fund got downgraded by Moody's. By the way, the rating agencies are always very slow. If the rating agencies are downgrading it, you know, it's bad.

[Ed Elson]

That's a real problem.

[Steve Eisman]

You know, now it's problem because if even the rating agencies admit there's a problem, you know, problem, yes. So you have one downgrade of a fund because its non accruals were too high. I think they were 5.5% which is probably the highest in the industry. There's private credit. There are three parts to private credit. There's direct lending, there's asset backed lending and then call it other. The biggest category is direct lending and then asset backed lending. Direct lending, which gets the most press. 80% of that business is basically private credit lending money to private equity to buy companies. What makes this sort of incestuous is that most private credit funds are run by private equity companies. So in a sense what you have is private equity raising money in its private credit funds to lend to itself to go buy the companies that it wants to buy. Sounds circular. It's only because it is. So 80% of private credit is related to that. Now between 2018 and 2022, private equity went on a buying binge of software companies. Yep. Now that looked like a great decision because you know, for the last 30 years the best place in tech to be was in software. You have the SAS model software as a, I think it's called software as a service model where you pay monthly. So everybody loads that because it's so easy to model. You know, software companies have done exceptionally well as, as technology has grown and they want to on a buying binge. So apparently about 25% of all direct lending is in software companies that were bought between 2018 and 2022. Now those companies were bought when interest rates were considerably lower than where they are today. A lot of that happened during COVID and about 11% of those loans are going to need to be refinanced next year and another 20% are going to be refund, need to be refinanced the year after that. And if they are refinanced at all, they're going to be refinanced at considerably higher interest rates. So that's a problem. And some of them may not be refinanced at all because people are literally freaking out about the impact of AI on software. As I'm sure you've told your viewers, many, many Times that I've told mine.

[Ed Elson]

Yes.

[Steve Eisman]

So what's hap. And then there was a piece of news today that I thought was very interesting, which it was not in the direct lending world, it was in the asset backed world. Barclays put out a press release. I don't know if it's a press release or it was a Bloomberg story. I think it was a Bloomberg story that Barclays has dramatically pulled back from making asset backed loans to small to medium sized companies. So it'll only make asset backed loans to large corporates. This is what happens at the beginning of a credit cycle. The news gets bad, people start to worry about losses, underwriting standards start to tighten, certain borrowers are cut off and lending gets tight.

[Ed Elson]

Yes.

[Steve Eisman]

And when that happens, more often than not, but not all the time, you go into a recession. Private credit is now big enough and it has been the entire growth engine of lending for the last 10 years that if private credit starts to get very, very tight, that's going to hurt our economy a lot.

[Ed Elson]

So I think that is the big question for regular investors because we saw what happened when that credit cycle occurred in 2008. People got crushed. It was just total chaos. And everyone knows about your role in that story.

[Steve Eisman]

It's not going to be as bad as that. Yeah, everybody's got to calm down. I mean, we'll talk about that. If there's a recession, it'll be a recession. It's not going to be, I feel very strongly it won't be a financial

[Ed Elson]

crisis, which is an important point because that is where the mind goes to.

[Steve Eisman]

That's where the mind goes because of PTSD. Everybody has it from 2008.

[Ed Elson]

But it does seem, I mean, when you think about the dynamics here, if I could just try to like simplify really what's happening. It's almost like this, this big. A huge amount of leverage was built up on top of these software acquisitions. And now that everyone has decided actually maybe those acquisitions weren't such a good idea, suddenly it means that the lending that was built on top of those acquisitions was an even worse idea. Those could get totally wiped out. And, and, and the dynamics.

[Steve Eisman]

So the equity, the equity gets wiped out first?

[Ed Elson]

Yes.

[Steve Eisman]

So how, and the problem with analyzing this, it would be nice to know what is the average for your typical one of these software companies? Let's say I'll just make up a number. Let's say $100 million was lent to buy this company. That's the debt. How much is the equity? Is there 100 million in equity? Is there 10 million in equity? I don't know. And these companies aren't disclosing it. So, you know, if there's a lot of equity there, then maybe the lenders are protected. Just the equity gets wiped out or really are hurt very, very, very badly. Right, but we don't know because we don't have enough data.

[Ed Elson]

And in that dynamic, what you have is, as we've discussed here, these withdrawal requirements that are becoming more and more discussed in the news, which has the feeling of a bank run. It's like, oh no, I'm not so confident anymore. I want to take my money out. And the banks say, no, you can't take your money out. Which makes people even more anxious. They want to keep taking the money out, which is kind of the problem. And in the case of a regular bank, the people who are trying to take their money out are regular people.

[Steve Eisman]

Yes.

[Ed Elson]

In the case of the private credit markets, it seems that it's mostly not regular people, but also kind of regular people because as you say, they opened it up to retail.

[Steve Eisman]

Well, it's retail. It's people with 401ks, it's people with brokerage accounts. I would say it's not lower middle class people, it's people with money who are upset that they can't get their money back. I'd be upset too.

[Ed Elson]

Yeah. I guess the final question before I let you go here is if this occurs, if the credit cycle does occur here, how bad would it be? What would that recessionary moment look like? And how much better would it be compared to, say, 2008?

[Steve Eisman]

Okay, that's actually a very, very important question to address. What made 2008 as calamitous as it was was that not only was there a recession, but there was an actual fear that the entire banking system was going to collapse. And then when the banking system collapses, that means if you go to the bank, you can't get your money. That's planet Earth burn situation. And that's why the government had to step in. Since the financial crisis, I think the Federal Reserve, which is the chief bank regulator of the United States now that was what happened from Dodd Frank, has done a very, very, very good job recapitalizing the banking system and reducing its risks. Not that it has no risks. This industry loans to these private credit funds. But I would categorically state that the US Banking system is better capitalized than it has ever been in history. Hard stop. It's never been even close to this. Well, capitalized also has never had as much liquidity on its balance sheets as it has today. So I don't worry if there is a recession, that there's a banking crisis leaving Silicon Valley aside, which is a very, very unique kind of situation. If we have a credit cycle, private credit could put the economy into recession and it'll be a garden, I think a garden variety recession. People will lose. I mean, it's not going to be pleasant. Nobody's going to be happy and say, oh, it's only just a recession. No one's going to put candles on a birthday cake and say, how wonderful is this? But it'll be a garden variety recession and the economy will slow down, people will lose jobs and eventually we'll come out of it. But you're not going to. No one's going to be worried about JP Morgan or Citigroup or Wells Fargo or any of the banks. It's unimaginable to me at this point.

[Ed Elson]

Yeah. Equal parts encouraging and also quite worrying at the same time. We'll probably have to do another episode on this. Digging deeper. I'm sure we're going to see a lot more heads.

[Steve Eisman]

You think there's going to be more news like, like maybe tomorrow.

[Ed Elson]

Exactly. You have to redo your, your, your monologue again.

[Steve Eisman]

I have to redo my rap.

[Ed Elson]

Your rap. Steve Iseman, host of the Real Eisenman Playbook. Steve, always appreciate it. Thank you. Thank you.

[Steve Eisman]

Thanks for having me.

[Ed Elson]

Well, we've already discussed the insider trading scandal as it relates to Trump and Iran. The fact that $2 billion worth of oil and S and P futures were traded 15 minutes before Trump announced he was in talks with Iran, and the fact that we likely won't see any retribution because Trump has essentially gutted the sec, the agency whose job it is to go after these crimes. We've discussed all of this, but I think we should also just take a moment to put this specific insider trading scandal into context and acknowledge the fact that actually, this isn't the only one we've seen. No, we have seen plenty of other insider trading scandals during this administration, which Anthony correctly highlighted. But each time it happens, and after we've expressed a little bit of outrage, we seem to forget about it and then we just move on to the next thing. So let me just remind you of a few of those scandals. Let's start with the tariffs, for example. Most of us were busy worrying about how bad the tariffs would be for the economy and for inflation and for trade relationships. And indeed, we were right. What we forgot about, though, was the fact that Millions of dollars were likely being made by insiders who already knew what Trump's tariff policy was going to be. For example, more than a dozen government officials and congressional aides made big stock market trades before Trump came out with his first Liberation Day announcement. After that, he pulled those tariffs and he famously tacoed. But just a few minutes before he did so, we saw once again a huge spike in S and P options trading, with some trades skyrocketing more than 2,000% in a single hour. It was one of the largest jumps in the S&P's history. And a handful of people mysteriously seemed to know exactly what was about to happen. We also have to mention the insider trading in crypto. The fact that Trump Coin netted more than a billion dollars for 58 anonymous crypto accounts. Accounts whose operators happened to sell at the exact right time, right before millions of Americans lost literally billions of dollars of their own money. The same thing happened with Melania Coin. The same thing happened with World Liberty Financial. In fact, Eric Trump is now bragging about how much money his family made off of these crypto grifts. But I'm not done yet. We could also talk about the billions of dollars Jared Kushner raised from foreign governments to invest in Middle Eastern assets before he personally steered us into war with Iran. And as was literally admitted by Trump himself, we could also talk about the millions of dollars the Trump kids invested in defense companies and drone startups again, before we decided to go to war in the Middle East. We could also talk about the Witkoff children, who have been personally brokering real estate deals in the Middle east while their dad runs the United States foreign policy for the region. Or even we could talk about David Sacks, who continues to invest in AI companies through his VC firm while he simultaneously runs our AI policy for the entire nation. I could go on and on here. This is just scratching the surface. And as I explained yesterday, and as Anthony explained too, this is only going to continue because the SEC and the DOJ and even the FBI have decided to. They don't want to do anything about it. Why? Because if they do, they'll probably get punished. Maybe they will get fired. This is a classic case of corruption. This is what happens in Russia. This is what happens in the fictional world of Batman and Gotham. The criminals are now in bed with the cops, which leaves us with one option. We have to vote them out. But it also leaves Democrats with an interesting opportunity, especially the Democrats who are running for election. And that is, you could make this your platform. You could promise that if you win, you will put every Trump affiliated insider trader behind bars. In fact, every insider trader for that matter, that could be your campaign. And even better, if you win, you could actually follow through with that promise and you could actually put these people in jail. Not because it's performative and not because it got you the votes, but because it is the right thing to do. Billions of dollars have been made off of insiders connections to the President. But the more honest way to put it is that billions of dollars have been stolen by insiders connected to the President. The grift and corruption is reaching a level here that is simply untenable. And I think we can all agree it is time we put an end to it. Okay, that's it for today. This episode was produced by Claire Miller and Alison Weiss, edited by Joel Patterson and engineered by Benjamin Spencer. Our video editor is Brad Williams. Our research team is Dan Shalon, Isabella Kinsel, Kristen o' Donoghue and Neil Saverio. And our social producer is Jake McPherson. Thank you for listening to profit markets from Proftry Media. If you liked what you heard, give us a follow. I'm Ed Elson. And tune in tomorrow for our conversation with Bill Gurley. Today's number 77. That's how many people are in Ireland's. I don't know why I said it with an Irish accent. That's super weird. Can start again.