The Next Big Short is the Trade War

Summary

Podcast Summary: The Compound and Friends – "The Next Big Short is the Trade War"

Episode Information:

• Title: The Next Big Short is the Trade War
• Hosts: Downtown Josh Brown, Michael Batnick
• Special Guest: Steve Eisman
• Release Date: June 13, 2025

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Introduction

In episode 196 of The Compound and Friends, hosts Downtown Josh Brown and Michael Batnick welcome renowned investor Steve Eisman, best known for his pivotal role in predicting the 2008 financial crisis—a narrative famously depicted in Michael Lewis's The Big Short. Eisman shares his insights on current economic trends, the potential impact of a trade war, and his perspectives on various financial sectors.

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Reflecting on the 2008 Financial Crisis

Michael Batnick: “Steve, give you some credit for not becoming a perpetual bear after the financial crisis.” [09:10]

Steve Eisman: “2007 was fun because I was short all the subprime paper... It was a zero-sum bet.” [10:30]

• Key Points:
  • Eisman discusses his experience during the 2008 crisis, emphasizing his anticipation and shorting of subprime mortgages.
  • He highlights his disappointment in Wall Street's practices and their role in exacerbating the crisis.
  • Reflects on the lack of preparedness from government entities, noting a pivotal realization in the summer of 2008 that the Fed and Treasury were unaware of the crisis's depth.

Notable Quote: “Incentives trump ethics almost every time.” – Steve Eisman [19:53]

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Current Economic Landscape: The Deficit Debate

Michael Batnick: “People confuse the federal deficit with household finances.” [32:08]

Steve Eisman: “I love the deficit. I want more of the deficit because we are the reserve currency of the world.” [27:35]

• Key Points:
  • Eisman dismisses long-standing fears about the federal deficit, arguing that as long as Treasuries remain the global reserve currency, concerns are overstated.
  • He likens the deficit debate to Wall Street’s virtue signaling, critiquing pundits who amplify deficit concerns without tangible outcomes.
  • Batnick counters by noting historical instances where deficits coincided with stock market bubbles, suggesting complex interdependencies.

Notable Quote: “Everybody in the chain, from the originators to Wall Street, they all got paid on volume.” – Steve Eisman [20:43]

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The Impending Trade War: Risks and Implications

Michael Batnick: “The Next Big Short is the Trade War.” [Episode Title]

Steve Eisman: “If there's a trade war, there'll be a global recession, and it's binary.” [37:14]

• Key Points:
  • Eisman expresses concern that escalating tariffs between the US and China could trigger a global recession.
  • He compares the potential trade war fallout to the complexities that led to World War I, emphasizing the unpredictable nature of international negotiations.
  • Batnick introduces the concept of "sneakflation," where firms may discreetly implement price hikes to offset tariff-induced costs, spreading inflationary pressure across various sectors.

Notable Quote: “The only thing that will impact this is whether there's a trade war.” – Steve Eisman [37:14]

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Private Credit and Financial Services Sector

Michael Batnick: “Private Credit is getting a lot of attention, especially from wealth managers.” [59:15]

Steve Eisman: “I have no data to have an opinion on private credit, but it's possible it could blow up.” [59:51]

• Key Points:
  • Discussion on the rise of private credit as a significant area within financial services, driven by regulatory changes post-Dodd-Frank.
  • Eisman remains skeptical due to the lack of transparency and data, drawing parallels to the subprime mortgage crisis.
  • Batnick highlights the risks associated with private credit funds, where average investors could be exposed to heightened risks without adequate oversight.

Notable Quote: “I just don't believe you're going to be able to disenfranchise fees.” – Steve Eisman [58:53]

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Banking Sector Insights: Goldman Sachs and Morgan Stanley

Michael Batnick: “What do you think of Goldman's place in this new world?” [60:55]

Steve Eisman: “Goldman is back in terms of its business model... Morgan Stanley has a more durable business model and much more diversified.” [61:26]

• Key Points:
  • Eisman praises Goldman Sachs for returning to its core strengths in trading, M&A, and IPOs but advises against viewing it as a long-term investment.
  • He favors Morgan Stanley for its diversified business model and higher return on equity (ROE).
  • Discussion on regional banks and the potential need for mergers to enhance competitiveness amidst high regulatory and technological costs.

Notable Quote: “Emma says, I hate it more than him. He's nobody.” – Steve Eisman [28:42]

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Technological Disruptions: Stablecoins and Fintech

Michael Batnick: “We learned there are alternatives to Treasuries with stablecoins.” [29:48]

Steve Eisman: “Circle is regulated and trustworthy, but how big can stablecoin really get?” [65:32]

• Key Points:
  • Exploration of stablecoins as potential disruptors to traditional payment systems, though Eisman remains cautious.
  • Discussion on Circle's stablecoin, highlighting regulatory compliance but questioning the scalability and real impact on entrenched systems like Visa and MasterCard.
  • Batnick introduces "sneakflation" and the role of stablecoins in remittances, while Eisman underscores the dominance of existing financial infrastructure.

Notable Quote: “How much could you possibly make with a trillion dollars in Circle? 4%.” – Steve Eisman [67:19]

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Labor Market and Economic Resilience

Michael Batnick: “Unemployment claims are rising, making rehiring more challenging.” [37:06]

Steve Eisman: “The economy is incredibly resilient... unless there's a trade war.” [41:22]

• Key Points:
  • Batnick notes increasing unemployment claims and difficulties in rehiring post-pandemic.
  • Eisman attributes economic resilience to the absence of a trade war, suggesting that tariffs and trade tensions are the primary threats to sustained growth.
  • The hosts discuss the binary nature of potential outcomes: continued growth without a trade war or a global recession if one ensues.

Notable Quote: “If there's a trade war, we'll have a recession.” – Steve Eisman [37:14]

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Conclusion and Final Thoughts

The episode wraps up with personal exchanges, highlighting Steve Eisman's anticipation for his daughter's upcoming wedding and casual conversations about comic book movies. The hosts encourage listeners to follow Steve's podcast, The Real Eisman Playbook, for more insights.

Final Notable Quotes:

• “I'm looking forward to the wedding.” – Steve Eisman [69:53]
• “I'm one of the world leading experts on comic books.” – Steve Eisman [72:43]

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Key Takeaways:

• Trade War Risks: A potential US-China trade war poses significant risks, potentially triggering a global recession.
• Deficit Concerns: Eisman challenges traditional views on the federal deficit, emphasizing the centrality of Treasuries in the global financial system.
• Private Credit Skepticism: The rise of private credit warrants caution due to inherent risks and lack of transparency.
• Banking Sector Preferences: Goldman Sachs offers trading and IPO opportunities, while Morgan Stanley presents a more stable long-term investment.
• Stablecoins' Role: While stablecoins present innovative payment solutions, their substantial impact remains uncertain amidst existing financial infrastructures.
• Economic Resilience: The US economy shows resilience, but vulnerabilities remain primarily tied to international trade tensions.

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Recommended Listening: For a deeper dive into Steve Eisman's investment philosophies and analyses, listen to his dedicated podcast, The Real Eisman Playbook.

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Note: All opinions expressed are those of the speakers and do not constitute investment advice. Please consult with a financial advisor before making any investment decisions.

Transcript

[Josh Brown]

So, Josh, Steve is also in On Mobland. So get involved.

[Michael Batnick]

I am two episodes deep and I stopped. I don't know why.

[Josh Brown]

Get back.

[Michael Batnick]

No, I will.

[Josh Brown]

I love Tom Hardy, admittedly the first two, but like.

[Steve Eisman]

Well, if you like Tom Hardy, you got to see Peaky Blinders because of course.

[Michael Batnick]

Come on. Come on. Of course.

[Steve Eisman]

Peaky Blinders. He's insane.

[Michael Batnick]

I'm gonna tell you a deep cut. Tom Hardy. I think it's on. Is it on Netflix now? Havoc.

[Steve Eisman]

I watched it. I didn't think that was that good.

[Michael Batnick]

It's the weirdest thing I've ever seen.

[Steve Eisman]

So strange.

[Michael Batnick]

But the cast is so out of control. Good.

[Steve Eisman]

Yes.

[Michael Batnick]

They have Forest Whitaker. They have.

[Steve Eisman]

Yeah. But it's like they went to waste.

[Michael Batnick]

Who else?

[Steve Eisman]

Forest Whitaker is excellent on this. On the show on MGM called Godfather of Harlem.

[Michael Batnick]

I watched the whole thing, which is great. I'm obsessed.

[Steve Eisman]

Yeah.

[Michael Batnick]

And a lot of that's like true stories.

[Steve Eisman]

Bumpy Johnson was a real person, historical figure, gangster.

[Josh Brown]

No.

[Michael Batnick]

Yes. The guy that dies at the beginning of American Gangster is Bumpy Johnson.

[Steve Eisman]

Right.

[Michael Batnick]

But also in Havoc is Timothy Olyphant is probably one of the best TV actors.

[Steve Eisman]

Justified.

[Michael Batnick]

Justified. Oh, unbelievable. They use him in like 10 scenes. He should have been. He should have been in every scene.

[Steve Eisman]

He's a great actor.

[Josh Brown]

I have to watch Justified.

[Steve Eisman]

Justified is superb.

[Michael Batnick]

Can I get some juice?

[Josh Brown]

Thank you.

[Michael Batnick]

All right, hold on. I have like, pings going off here. We will silence Steve. This is gonna. This is gonna be awesome. We are so thrilled to have you. And this is gonna be. This is gonna be such a treat. I've been excited about this for two weeks now, so.

[Steve Eisman]

Only two?

[Josh Brown]

Yeah, well, that's not that.

[Michael Batnick]

That's. I can only think in increments of a week or two these days, so. All right, what are you asking for? For father? Do you ask for a Father's Day gift?

[Steve Eisman]

I never asked for any gifts.

[Michael Batnick]

Do you get Father's Day gifts?

[Steve Eisman]

Basically not.

[Josh Brown]

Do you?

[Michael Batnick]

You don't anymore?

[Steve Eisman]

No.

[Michael Batnick]

Are you kids in their 20s or 30s?

[Steve Eisman]

They're getting. One of my daughters is getting married less than a month.

[Michael Batnick]

All right, so I have a 19 year old and a 16 year old.

[Steve Eisman]

Okay, I'm way past you.

[Michael Batnick]

The 16 year old.

[Steve Eisman]

Will you have Tsarus?

[Michael Batnick]

Give me a hug.

[Steve Eisman]

You have Tsarus?

[Michael Batnick]

Yeah.

[Steve Eisman]

That's all you have?

[Michael Batnick]

Yeah. I want to ask for something. I feel like.

[Steve Eisman]

Why? What do you need?

[Michael Batnick]

I don't know. We just did my kids.

[Steve Eisman]

I just got new golf club. What else could I want out of life?

[Michael Batnick]

We Just did my kid's 16th birthday. Like, that's my wife's boyfriend. The. The little boy.

[Steve Eisman]

The boy.

[Michael Batnick]

Oh, yeah, of course. Big time. He got AirPods Max. Like the big headphones. He got a workout bench. He got the adjustable dumbbell, like the adjustable weight dumbbells. He got all these gift cards, and I'm happy to do that.

[Steve Eisman]

I bought him a sword that he actually uses.

[Michael Batnick]

What does he use it for?

[Steve Eisman]

So my son's crazy. So my son used to be like a power lifter.

[Michael Batnick]

Okay.

[Steve Eisman]

Built like a brick shithouse.

[Michael Batnick]

Yeah.

[Steve Eisman]

And then he got into taekwondo, Brazilian jiu jitsu.

[Michael Batnick]

Okay.

[Steve Eisman]

And then he moved on from Brazilian jiu jitsu called longsword competitions.

[Michael Batnick]

So he's a samurai.

[Steve Eisman]

So he. Longsword competitions are. They use swords that are facsimiles of swords that were used in Europe in the early 1600s. And he's completely padded, and basically they whacked the shit out of each other.

[Michael Batnick]

Come on.

[Steve Eisman]

And I have videos. My son, he could kill you. I mean, he is so fast in this thing. I'll show you later. I'm serious. So there are 10,000 people who compete on planet Earth in this thing.

[Michael Batnick]

Okay.

[Steve Eisman]

And my son is ranked 250.

[Michael Batnick]

Come on. Wow.

[Steve Eisman]

He's unbelievable.

[Michael Batnick]

So it's global.

[Steve Eisman]

It's a Europe in the US So.

[Michael Batnick]

Is it a lot of, like, British and Japanese because.

[Steve Eisman]

No Japanese. It's like continental Europe, Germany, Scandinavia, France.

[Michael Batnick]

And the US but they're not in, like, costume.

[Steve Eisman]

No, they're in. They're in. Basically, they look like the way fencers are dressed.

[Michael Batnick]

Yeah. Okay.

[Josh Brown]

Have you ever seen role models?

[Michael Batnick]

Yeah.

[Josh Brown]

So what is he? A sword.

[Steve Eisman]

Wait, so it's called longsword competition.

[Michael Batnick]

Okay, so what does he do to. What does he do to train for this? It's like he's got other people, works.

[Steve Eisman]

Out all the time.

[Josh Brown]

He's.

[Michael Batnick]

Swords.

[Josh Brown]

What don't you get?

[Steve Eisman]

But when they. With all this padding and stuff, when he's fighting, he's sweating like crazy because it's huge.

[Michael Batnick]

Now what do you do after that? Fighting dragons? Like, what's the next. What's the next step?

[Steve Eisman]

I'd say to him, david, you know what we should do is we should send you back in time to Eastern Europe. You could help the Jewish people because they could use some defense.

[Josh Brown]

Absolutely.

[Steve Eisman]

He'd be helpful.

[Josh Brown]

We could use them.

[Michael Batnick]

I don't know if one swordsman would have been enough that would get hurt. How far back in time you want to send them? All right, that's interesting. And you Have. How many kids do you have?

[Steve Eisman]

Three.

[Michael Batnick]

Three. Okay. And they're all grown.

[Steve Eisman]

They're all grown.

[Michael Batnick]

So I'm two years away from both my kids being in college. I really don't know what I'm going to do with myself. Oh, there's lots of things to do, I'm sure. But I haven't hit upon it yet.

[Steve Eisman]

Well, my golf game has improved enormously. Yeah, that's probably why my tennis game has gotten better. I still play squash.

[Michael Batnick]

I'm probably going to. I'll probably be. I'll probably be golfing and tennis too.

[Josh Brown]

Do you golf in New York or just Florida?

[Michael Batnick]

Both.

[Josh Brown]

Where? In Westchester.

[Steve Eisman]

We have a house that we rent in East Marion. All the way out on Long Island.

[Michael Batnick]

You have the same accent as me. Are you from Long Island?

[Steve Eisman]

No background. Bite your tongue.

[Michael Batnick]

Okay, well, Queens.

[Josh Brown]

I told them we're from America.

[Steve Eisman]

I'm from the Upper east side of Manhattan. I'm very high class.

[Michael Batnick]

You grew up Upper east side?

[Steve Eisman]

Yes.

[Michael Batnick]

Okay.

[Josh Brown]

We're from the Lower east side of the South Shore.

[Steve Eisman]

I can tell.

[Michael Batnick]

I live. I lived Upper east side for, for a while.

[Steve Eisman]

I've always lived Upper east side.

[Michael Batnick]

I lived in Rupert Towers.

[Steve Eisman]

Okay. That was 3rd Avenue.

[Michael Batnick]

Yeah. So that was the, the aughts decade. I lived like basically until the crisis. And then I had no money and we were having kids and it was like, we gotta get outta here. We're in a one bedroom and so.

[Steve Eisman]

Where'D you move to?

[Michael Batnick]

Back to Long Island.

[Steve Eisman]

Long island, of course. Where on Long Island?

[Michael Batnick]

So we moved back to the town we grew up. My wife is my high school sweetheart, so we moved back to the town we grew up in. And the added bonus was her parents still live there, so they had bedrooms set up for the kids. It was one of the smartest decisions I ever made.

[Steve Eisman]

So what town in.

[Michael Batnick]

In Merrick.

[Steve Eisman]

Merrick. Oh, you're also Merrick. Merrick.

[Michael Batnick]

We're both from the same. We're. We're almost stopped.

[Steve Eisman]

What are the stops on Long Island? Railroad from Merrick.

[Michael Batnick]

So I'll help you. We're in between five towns and. Massapequa.

[Steve Eisman]

Massapequa. Massapequa Park.

[Josh Brown]

Babylon.

[Steve Eisman]

Babylon. Ron Konkama.

[Michael Batnick]

It actually. It, it actually goes. It actually goes Lynbrook. Wait, what?

[Josh Brown]

It goes Lynbrook Waffle Center.

[Michael Batnick]

Baltimore. Lynbrook Vocal Center. Baldwin.

[Josh Brown]

No Merrick.

[Michael Batnick]

Merrick wants seafood.

[Steve Eisman]

No. Belmore.

[Michael Batnick]

Belmore. We miss Bellmore.

[Josh Brown]

Belmore Want to miss Pica Park.

[Steve Eisman]

So my parents had a house in Atlantic beach, so I grew up there.

[Michael Batnick]

In the summers, I Love Atlantic. We're Catalina members. Oh, I'm there. Yeah, there you go. If it's nice out, I'm probably.

[Josh Brown]

I will be there on Saturday.

[Steve Eisman]

I met my wife on the boardwalk in Atlantic Beach.

[Josh Brown]

Me, too. Sunny Atlantic. There we go. See, we're not so different, you and.

[Steve Eisman]

I. I think we're very different. I wouldn't go there. Let's get this going.

[Michael Batnick]

All right. Let's start the show. Very exciting.

[Josh Brown]

Whoa, whoa, whoa. Stop the clock. Here's a word from our sponsor.

[Michael Batnick]

This episode is sponsored by Vaneck. There is a huge wave of demand currently and on the horizon from hyperscalers for data center power. Many have already looked to nuclear as a solution in the short to intermediate term. The Vaneck uranium and nuclear ETF ticker symbol NLR gives investors comprehensive exposure, including utilities, uranium miners and service providers. Renewed policy support from the U.S. france, Japan and China, among others, is coming. Increased demand is coming as well. Find out [e-mail] NLRJosh that's vaneck.com NLRJosh welcome to the compound and friends. All opinions expressed by Josh Brown, Michael Batnick and their castmates are solely their.

[Steve Eisman]

Own opinions and do not reflect the.

[Michael Batnick]

Opinion of Ritholtz Wealth Management.

[Steve Eisman]

This podcast is for informational purposes only.

[Michael Batnick]

And should not be relied upon for any investment decisions.

[Steve Eisman]

Clients of Ritholtz Wealth Management may maintain.

[Michael Batnick]

Positions in the securities discussed in this podcast. All right, ladies and gentlemen, welcome to episode 196 of the Best financial podcast on the planet. You are now rocking with Michael Batnik, myself downtown, Josh Brown, first time listeners, we apologize in advance. Longtime listeners, we love you. Thank you for being here. We have an extremely special first time guest. I've been excited about this, as I said, for a fortnight. Steve Eisman is an investor and financial analyst best known for his bet against the US housing market prior to the 2008 financial crisis, a story chronicled in Michael Lewis, the Big Short. He was portrayed by Steve Carell in the film adaptation, Steve. Steve has held senior roles at Oppenheimer and Company, FrontPoint Partners, and he currently hosts his very own podcast called the Real Eisman Playbook. Steve Iseman, welcome to the show.

[Steve Eisman]

Thank you. Good to be here.

[Michael Batnick]

All right. I want to give you. I want to give you some credit for something that I don't know if other people say to you. Being known for getting the financial crisis right. There's like a list of 10 people that we all know the names. Okay. Most of them persisted in their bearishness or doubled down on it. And some of them to this day, they're waiting for the next 2008. Every time you hear them open their mouths, you are one of the few people to have made the turn. You sort of, like, came to prominence as a result of this incredible call that you made. And not just call, but actually money behind it. And that's amazing. But you also transcended that group of people because you didn't become a perma bear forever, constantly denying the obviously incredible comeback we've had over the last 15 years. So I wanted to give you credit for that. Do other people give you credit for that?

[Steve Eisman]

Not too frequently.

[Michael Batnick]

Okay. But it's like a notable thing, right? Because the easiest thing to have done was to lean into the character, the Persona, and like, all right, here's gonna be the next crisis. Here's gonna be the next crisis. And we saw a lot of those guys do that.

[Steve Eisman]

I don't look at it that way. 2007 for me was fun because I was short all the subprime paper. I couldn't stand what Wall street was doing to planet Earth. And so it was a zero sum bet. If I was making money, the other side was losing money, so I was making money off of Wall street. That was fun. 2008, I don't think it was fun for anybody. I sort of viewed it as gonna go back to my Jewish day school roots. It's kind of like Noah and the ark.

[Michael Batnick]

Okay.

[Steve Eisman]

You know, so Noah builds the ark. His family's inside, but people outside are screaming and dying. I don't think Noah's happy in the ark. I mean, he's happy he's alive and his family's alive, but he's not happy that the planet Earth's getting wiped out.

[Michael Batnick]

Did it get worse than you initially had thought it would?

[Steve Eisman]

I don't think it got worse than I thought it was gonna get. What I was shocked by in 2008 was this was where I actually made intellectual error. I thought. And my partners and I all thought that surely the people of the United States government and the Fed know what we know.

[Michael Batnick]

Okay.

[Steve Eisman]

Because. And if they know what we know, they're getting prepared to bail out the system any second.

[Michael Batnick]

Right.

[Steve Eisman]

And it turned out that they didn't know. Yeah, they had no idea.

[Michael Batnick]

When. When did you first realize that?

[Steve Eisman]

I probably realized that sometime in the summer of 2008.

[Michael Batnick]

Okay.

[Steve Eisman]

You know, I think they took over Fannie Mae around that time.

[Michael Batnick]

Yeah.

[Steve Eisman]

Or maybe that was 07. I can't remember when you say they.

[Josh Brown]

Didn'T Know who specifically Fed Treasury?

[Steve Eisman]

Hank Paulson. I mean, I'll give you an example of how. How it's very clear that they didn't know. You know, if you read Andrew Sorkin's book, Too Big to Read. Yeah, that's. That's a short book for me. Literally. I mean, I think I read too. Too Big. What's it called? I probably read it about two hours.

[Michael Batnick]

It's a good book.

[Steve Eisman]

It is a good book. But he has a scene in there where it's just after Lehman, and so that's September already. That's September. So it's not like September 14th, September 15th, and they're all having a big meeting and somebody walks into the room and says, oh, my God, AIG is in trouble. And it's like, really? Really? Yeah. This is a surprise to you? Like, don't you read the research? And it was obvious I didn't read the research. They had no clue.

[Michael Batnick]

So I wanted to just kind of agree with you, like, that. They had no clue. There's an apocryphal story where there's only one Bloomberg terminal in the entire Federal Reserve at that time.

[Steve Eisman]

That's possible.

[Michael Batnick]

That seems inconceivable now.

[Steve Eisman]

Right.

[Michael Batnick]

But yeah, that was what it was. Jim Cramer knew what was going on. He was shouting on tv. The bloggers all seemed to. The econ bloggers all seemed to know what was going on. My partner, Barry Ritholtz, being one of the people writing about the coming housing crash. But these are not people in a position of power.

[Steve Eisman]

I mean, I remember there was an amusing moment where I remember we were sitting in our offices. TV was on, and back to back, both Bernanke and Paulson came on and said, the subprime crisis is contained. And I remember I turned to Danny Moses, I said, yeah, it's contained, all right. It's contained. The planet Earth.

[Michael Batnick]

Contained. It was that. The new version of Contained was the. The inflation crisis, where it was transitory. It's like the same.

[Steve Eisman]

That was the original.

[Michael Batnick]

That was the original Contained. Planet Earth is amazing. I wanna read something. So Steve Carell famously portrayed you, and I thought this was sort of interesting. This is what he said about meeting you. He's clearly a very intelligent guy, somewhat brash, outspoken. But honestly, when he walks in, there's no pretense. It's not like he's hiding anything about himself or trying to be anything other than what he is. I didn't have to, like, sift through layers of effect to get to who he was. There was something Very true about him as a person. And I guess you met him, he met your kids. Like you hung out with him for.

[Steve Eisman]

A day or two.

[Michael Batnick]

Okay.

[Josh Brown]

All right.

[Steve Eisman]

I met him at Three Guys, the diner.

[Michael Batnick]

Oh, I remember back then. Madison Avenue.

[Steve Eisman]

Madison Avenue, like 88th Street.

[Michael Batnick]

Yep.

[Steve Eisman]

And he wore a baseball hat. Pulled it over his eyes so nobody would recognize him. We had breakfast for, like, an hour. We talked, and then walked him over to our apartment. He met my wife and kids, and that was the last time I ever had a long conversation with Steve.

[Michael Batnick]

Corruption. You had to correct him on a very pivotal scene in the movie.

[Steve Eisman]

Oh, yes.

[Michael Batnick]

Okay. So this is him when they go to the convention in Vegas, and he, meaning the character who's playing you, finds out how corrupt the CDO market is. I was playing this one part, a little brooding, and Steve said, oh, I'd be much happier at this point than you are at this point. I was joyful because we had these guys on the ropes, and this was just going to be fun for me. So that's. That's like.

[Steve Eisman]

Well, that's not where I corrected him. I actually. My contribution to the movie literally can be confined to one word.

[Michael Batnick]

Okay.

[Steve Eisman]

And the word no.

[Michael Batnick]

Okay.

[Steve Eisman]

Not even close.

[Michael Batnick]

Not even close.

[Steve Eisman]

Not even close.

[Michael Batnick]

All right.

[Steve Eisman]

And the word is. There's a scene pretty much near the beginning of the movie where Steve Carell is walking. He's walking on Houston street and he's talking to his wife. My wife, Marisa Tomei. It never gets old. By the way.

[Michael Batnick]

Of course. Of course.

[Steve Eisman]

And by the way, my wife looks like Marissa. You could say my wife looks like. She's Marisa Tomei's sister. They look a lot alike.

[Michael Batnick]

All right. Very well done. I don't know where you were going with that.

[Steve Eisman]

I've got. You know, I had to get that out there.

[Michael Batnick]

And.

[Steve Eisman]

So he's walking on the streets of New York, and he's talking to her. And he's talking. He's talking, and he's about to hang up, and he hails a cab. So they have a cab pull up on House and Street, and as he's about to climb into the cab, they have this guy who's an extra, like, try to brush past him to steal the cab. And the way it was originally filmed, Steve Carell turns to the guy, confronts him and says, hey, that's my cab, asshole.

[Michael Batnick]

Yeah.

[Steve Eisman]

Cut. So we were invited to watch this scene. So it's me, my wife Valerie, my three kids. My kids were much younger than that.

[Michael Batnick]

Must have been surreal.

[Steve Eisman]

It was surreal.

[Michael Batnick]

Yeah.

[Steve Eisman]

And so Steve Carell walks over to Adam McKay, who is the director and author of the script, and they're watching the scene on a little camera, and I turn to my wife and I go, I gotta say something. And she says, don't say anything. And I go, no. She says, no, I gotta say something. She says, I'm begging you not to say anything. I said, no, I'm gonna say something. And I walk over and. And I say to them, hey, guys, if it were me, I'd have said, schmuck.

[Michael Batnick]

Yeah.

[Steve Eisman]

And schmuck's in the movie.

[Michael Batnick]

Okay?

[Steve Eisman]

And that's my only contribution.

[Michael Batnick]

Well, that's a big contribution.

[Steve Eisman]

Pivotal. They did not give me. They didn't even give me a credit.

[Michael Batnick]

It's very. It's very New York. Potts would have worked too.

[Josh Brown]

He did a good job.

[Steve Eisman]

So. Funny you should ask that. You know, when, when the movie came out, people who know me really well, who I grew up with, said, God, he really got you so well. And my feeling originally was, yeah, incredible portrayal. It's an incredible movie. But I don't think I was quite that angry. So the movie came out in. Beginning of 2015, and in April of 2015, the financial crisis Commission, which was a commission that President Obama created, did like a data dump. Whatever any piece of paper they had, they made it public. And one of the pieces of paper was the interview that they did with me in 2010.

[Michael Batnick]

You testified before Congress wasn't.

[Steve Eisman]

I did not testify before. This was a meeting that was at Frontpoint where they came in, they had a stenographer, and they interviewed me about what my thoughts lasted like two hours.

[Michael Batnick]

Okay.

[Steve Eisman]

And this was like a transcript of the interview. And I. So I hadn't thought about this in five years. And so I. You could. If you type STEVE Isban, Financial Crisis Commission, it would pop up. And so I read this for the first time when I was finished reading, I go, no, he was right. I was that angry.

[Michael Batnick]

You were that angry. You didn't realize it at the time until you reread the shit that was going on.

[Steve Eisman]

Yes. What I said, what I was like, I was. I was raving during that interview.

[Michael Batnick]

I think it was. I mean, it was. It was a valid thing to be raving about. The. We were still living with some of the consequences from. From it's 15 years later. And for some people, things were never the same ever again.

[Josh Brown]

Which part made you so angry, particularly?

[Steve Eisman]

I mean, I. When I was on the sell side at Oppenheimer, one of the industries that I covered was actually the original subprime mortgage industry. So I knew this industry cold. And over the years, I figured out some of the terrible shenanigans that they were doing to make loans and how bad the loans eventually became destined to fail. And worse than that, and the fact that Wall street was involved, egging these guys on and buying all their paper, it just disgusted me.

[Josh Brown]

So, worse than that? What do you mean? How is it worse?

[Steve Eisman]

Well, the original loan, the loan that was made back then was a teaser. That would be a teaser for two to three years.

[Michael Batnick]

A very low rate to start with.

[Steve Eisman]

Back then it was incredibly low. It was 3%.

[Michael Batnick]

Yeah.

[Steve Eisman]

And then you would get adjusted basically to 9.

[Michael Batnick]

Right. Like overnight.

[Steve Eisman]

And after two or three years, whatever the document said, boom.

[Michael Batnick]

But I'm saying it didn't ratchet.

[Steve Eisman]

Did not ratchet.

[Michael Batnick]

Right.

[Steve Eisman]

And the industry, as I like to say back then, underwrote the loan to the teaser rate, which means that they knew you could only pay three, you couldn't pay nine.

[Michael Batnick]

Right.

[Steve Eisman]

So the obvious question was, why would you write a 30 year loan where the customer's only going to be able to pay for the first three years? And the answer was actually very simple in that, you know, if you took out a subprime mortgage loan, you got charged, you got charged three to five points for the privilege. When you refinanced, you got charged the same three to five points again. So after three years, you'd get a phone call saying, hey, you got want to refinance. Of course you'd want to refinance because you want to pay 9%.

[Michael Batnick]

Yeah.

[Steve Eisman]

So you got charged 3 to 5 points, which got rolled into the loan. So nobody's principal ever got paid down. It was like being, you know, a rat in a maze. You can't get out of this thing.

[Michael Batnick]

And then it's, I'll be gone, you'll be gone. So whoever owns the loan today, too bad.

[Steve Eisman]

Too bad, right?

[Michael Batnick]

Too bad. You know, you get someone else's problem.

[Steve Eisman]

But everybody, you know, everybody in the chain, from the originators to Wall street, they all got paid on volume.

[Michael Batnick]

Yeah.

[Steve Eisman]

So, you know, it's one of my lines is that incentives trump ethics almost every time.

[Michael Batnick]

Last thing on the.

[Steve Eisman]

You didn't pause on that. That's a really good line.

[Michael Batnick]

Say it again.

[Steve Eisman]

Incentives trump ethics almost every time.

[Michael Batnick]

Yeah. So there's a similar version of that from that that I learned from reading Charlie Munger. And that's basically my life philosophy. Show me how people are getting paid and I'll tell you why they're doing what they're doing, or vice versa.

[Steve Eisman]

Same thing.

[Michael Batnick]

Yeah, I 100% agree with that. And I think if you're armed with that, going into any meeting, going into any encounter with anyone in the business world, or even outside of the business world, if you just start with that rubric as, like, your frame of, like, what is this about? It almost solves every question that might come up subsequently. So I very much agree with that. Last thing on the movie, I want to ask you, when you found out it was Steve Carell playing you, were you like, wait, also, Brad Pitt's in this movie? Also Gosling.

[Steve Eisman]

Okay, so sometime in, like, 2014, I think I got a phone call from Michael Lewis to say, hey, you know, Brad Pitt's company bought the movie rights.

[Michael Batnick]

They had a script I assumed he was playing.

[Steve Eisman]

Nobody liked it. But this guy, Adam McKay, I never heard of him at that time, just rewrote the script, and everybody loves it. So he's gonna direct and then making the movie, I'm like, okay, okay, Michael, sure. Nice talking to you.

[Michael Batnick]

Right.

[Steve Eisman]

Cause it's been years. So then, sure enough, Adam McKay calls me and the conversation, he says, you know, he says that we're making the movie. And he said, there's a real possibility that Brad Pitt's gonna play you.

[Michael Batnick]

Oh, my God.

[Steve Eisman]

And I said to him, this is a direct quote. I said, brad Pitt. Brad Pitt. I mean, come on. The only thing Brad Pitt and I have in common is we both have really good hair. That's it. So then it turned out Brad Pitt, for scheduling reasons, couldn't play the role. So Steve Carell. So it was like a comedown, actually.

[Michael Batnick]

So he really was going to play the Mark Baum character.

[Steve Eisman]

Originally, it was going to be Brad Pitt was going to play me.

[Michael Batnick]

That's incredible. That's amazing. Why did they change the name of the character for the movie?

[Steve Eisman]

That's a long personal story we don't.

[Michael Batnick]

Have to get into.

[Josh Brown]

Anyway, before we get to say, I just. I want to ask you, what was the period like for you as an investor from, say, I don't know, 09 to 13 or whatever? As we were eventually coming out and the QE and the QE2 and all that sort of stuff. What was that like for you personally?

[Michael Batnick]

People, like, dying to send you money would be the.

[Steve Eisman]

No, they were not dying to send me money.

[Michael Batnick]

Really.

[Steve Eisman]

It's a very weird thing. First of all, at the end of 08, so I had a great year in 07. I had a decent year in 08. And at the end of 08, I lost one third of my assets. Why? The reason why I lost 1/3 of my assets is that everybody else gated.

[Michael Batnick]

Oh. So they couldn't get it.

[Steve Eisman]

They couldn't get. So they had to get it from me. So they took one third and I never recovered from that.

[Michael Batnick]

They were so. They were.

[Josh Brown]

How mad were you?

[Steve Eisman]

I was so pissed off. It's like I just made you people a fortune. You reward me by those guys who gated you, you're going to stick with them.

[Michael Batnick]

How come you think that didn't happen to like Paulson and Pellegrin Greenie and those guys?

[Steve Eisman]

I just know I lost a third of my assets overnight.

[Michael Batnick]

Right. Because in other words, the other funds that they were in had all this real estate schlock and.

[Steve Eisman]

And they were gated. They couldn't get out.

[Josh Brown]

But so as we were recovering, did you see the recovery turning? Did you say the worst was behind us? Like how did you, how did you invest in the 09 to 13 period?

[Steve Eisman]

We got pretty bullish. We got long a whole bunch of stuff. The problem was that we were still mostly a financials only fund. And the last great year for financials was 2010. I think it was 2009. After 2009, the industry has basically done nothing except go sideways for the next 15 years.

[Michael Batnick]

Oh, that was your focus because you were a financials analyst. Fire.

[Steve Eisman]

It was the FrontPoint Financial Services Fund and the FrontPoint Financial Horizons Fund.

[Michael Batnick]

So you weren't buying.

[Steve Eisman]

Buying Apple.

[Michael Batnick]

Right, right. Got it.

[Steve Eisman]

Even though we wanted to, but that was not our mandate.

[Michael Batnick]

Yeah. And the truth is, financial stocks did not recover with the market. They came off the bottom.

[Steve Eisman]

They came off the bottom. They had a great 09.

[Michael Batnick]

Yeah.

[Steve Eisman]

And that was the end.

[Michael Batnick]

That was it.

[Steve Eisman]

That was the end. And the problem that they had was after, after Dodd Frank got passed. Right. So Daniel Torillo became the Vice chair of Financial Superintendent Vision, which is a fancy term for chief bank regulator of the United States. He is the first chief bank regulator of the United States in the history of the United States. Think about how insane that is. And so he went to town, he forced the industry to massively de lever and to de risk. So just to give you an idea, between when he stepped in, let's say beginning of 11 and when he left April 2016, Citigroup's leverage went from 35 to 1 to 10. Now, I don't care how good you are, when your leverage as a financial company goes from 35 to 1 to 10 your return on equity is going down.

[Michael Batnick]

Also. They couldn't merge with each other.

[Steve Eisman]

They couldn't do anything.

[Michael Batnick]

Couldn't do anything.

[Steve Eisman]

So why would you, why would you own Citi or Morgan Stanley or Goldman when you can own Apple?

[Michael Batnick]

Yeah. And they had a double dip crash because in 2010, 2011, the European thing. Right. People worried about Europe wrecking financial stocks in the United States.

[Steve Eisman]

Exactly.

[Michael Batnick]

I remember bank of America printed eight bucks a share at some point. I think some of the Warren Buffett stuff happened in 2010 and 2011 after the crisis. Some of those convertibles that he did because those stocks were pancaked again. So it's a tough area of focus, I guess for a long time coming out of the crisis years. Yeah. All right, let's talk about another tough area of focus. We wanted to start out with your opinion on one of the bigger stories of the spring. The deficit is back in focus. There was a really. No, it's not. Okay, stop. That's the, that's the nonsense. You could shoot it down.

[Steve Eisman]

It's out of nonsense.

[Michael Batnick]

Tell me why.

[Steve Eisman]

Take a look at a chart at the 10 year treasury yield. It's been in the same range for the last two years.

[Michael Batnick]

30 year. Broke above 5% for the first time in almost 20 years.

[Steve Eisman]

Big deal.

[Michael Batnick]

Okay.

[Steve Eisman]

Who cares?

[Michael Batnick]

All right, I'd like to hear that.

[Steve Eisman]

5%. Look, let's do a thought experiment.

[Michael Batnick]

Okay.

[Steve Eisman]

Let's go back in time. Let's say it's 1999 and we're gonna have two back to back guests on CNBC, which we all know and love.

[Michael Batnick]

Yeah.

[Steve Eisman]

Pete Peterson and Steve Eisman, a much younger version.

[Michael Batnick]

Okay.

[Steve Eisman]

And Pete Peterson gets on and says oi, the deficit. He's the original king of the oye the deficit.

[Michael Batnick]

The Blackstone co founder.

[Steve Eisman]

He was a founder of. He was a founder of. Co founder of kkr.

[Michael Batnick]

Kkr. Okay.

[Steve Eisman]

And all the deficit, it's so terrible. It's growing. It's going to get worse. It's going to, it's going to crowd out investment in the private sector. The dollar is going to lose its, lose its reserve status. Interest rates are going to go up because people are going to not want our bonds. Cats and dogs are going to lie down together. It's the end of the world.

[Michael Batnick]

Yeah.

[Steve Eisman]

Okay. And that's his interview. And then Steve Eisman comes on much younger, brasher version.

[Michael Batnick]

You could almost say Brad Pitt esque.

[Steve Eisman]

Right. Well, my hair had no gray back then. And Steve Eisman says. I completely disagree with Pete Peterson. I love the deficit. I Want more of the deficit because we are the reserve currency of the world and the entire financial system runs on Treasuries. We can afford to have a much bigger deficit. And this business about crowding out is nonsense. There's going to be no crowding out. Interest rates are going to go down and the US economy and 20 years from now will be the most dynamic it's ever been probably in our history. And that's my speech.

[Michael Batnick]

And then six months later the market.

[Steve Eisman]

Crashes and then leave that aside. I'll just say, and, and Pete. And everybody thinks Pete Peterson, oh, he's the man because he's the sage and Steve Isman's idiot. Who was right.

[Michael Batnick]

You were right.

[Steve Eisman]

I'd have been right.

[Michael Batnick]

Still right.

[Steve Eisman]

And, and the way I think about the deficit is the deficit is Wall Street's version of virtue signaling. People get on TV and they try to one up each other. I am against the deficit. And then the next guy says, oh, he's not against the deficit. I'm so much more against the deficit than the guy.

[Michael Batnick]

I hate it most.

[Steve Eisman]

I hate it more than him. He's nobody.

[Michael Batnick]

Okay?

[Steve Eisman]

And nobody ever asks the question, given all the Ajita around the deficit, why have none of these predictions ever even come close to happening? And I think what they all miss is that the entire, like I hinted at before, the entire financial system of planet Earth runs on Treasuries. You've got a multitrillion dollar repo market where banks lend to each other overnight. What's the currency? Treasuries. You're a sovereign wealth fund in Norway and you need to park your money in some medium term notes. What are you buying? You ain't buying Chinese bonds, you're buying Treasuries. So the only way people should really start to worry about the dollar losing its reserve status or our interest rates going up because of the deficit is if there's an alternative to Treasuries. Until there's an alternative to Treasuries, this is all just.

[Michael Batnick]

Oh, we found out there is. There is.

[Steve Eisman]

What's that?

[Michael Batnick]

Stable coins. We learned that last week.

[Steve Eisman]

We'll talk about that. We learned that last week with Circle.

[Michael Batnick]

Yeah. Well, so is there no limit then? Why not? So why not propose, propose a 10% annual budget deficit.

[Josh Brown]

It's not that.

[Steve Eisman]

I think that having such a big deficit is a great thing. I just don't sit there and worry about it all that much.

[Michael Batnick]

What about the dollar being down 11% year to date concerning or normalization or whatever. Whatever.

[Steve Eisman]

Okay.

[Michael Batnick]

It's refreshing. Almost nobody will say that.

[Steve Eisman]

No, nobody will.

[Michael Batnick]

And you really think, like I said.

[Steve Eisman]

Everybody wants to be virtuous, but you really don't. I'm not interested in being so virtuous.

[Michael Batnick]

You don't think there's legitimate concern? You really think it's.

[Steve Eisman]

I think it's all nonsense.

[Michael Batnick]

Let me come out against the deficit so people look at me as responsible.

[Steve Eisman]

All the things being equal, would it be a good thing to cut the growth rate of the deficit over time?

[Josh Brown]

Sure.

[Michael Batnick]

Right.

[Steve Eisman]

You know, that's, that's a very, very long term problem. You know when people get on, on TV and start, you know, complaining about the deficit and saying all the time, I just laugh. I think it's ridiculous.

[Josh Brown]

So when you, when people say the last time we had a surplus was 2001, you say who cares?

[Steve Eisman]

Who cares?

[Josh Brown]

Right.

[Steve Eisman]

So what? Yeah, I run my 2001. Let me ask you a question. Is the US economy more dynamic today a little bit than 2001? I'd say just a touch.

[Michael Batnick]

Can I make my, Can I give you my insight? As limited as it is on deficits?

[Steve Eisman]

It's your show.

[Michael Batnick]

Okay. If you just look at a chart of deficits versus stock market bubbles, you realize very quickly there have only been two times in history where we were in budget surplus. They both came as a consequence of massive stock market bubbles which led to tons of tax receipts in the follow on years. So 2001, 2002, that's people paying their taxes from the dot com bubble. And then in the late 60s when we had, you know, nifty 50. Yeah, the run up, like the run up of the stock market, Nifty50 kind of peaks in the early 70s. I guess we had this little moment there where we had a budget surplus. Other than that you're never in surplus. So if you want to have, if you actually want to tackle the deficit, maybe need more stock market bubbles. I don't know.

[Josh Brown]

Why do you think the average person gets mad about this?

[Steve Eisman]

Gets mad about this?

[Michael Batnick]

They confuse it with household finances.

[Steve Eisman]

Say the average person. Who's the average person?

[Josh Brown]

I'm not talking about the START fund manager. I'm talking about just the average citizen who is hemming and hawing about our. I think Josh is right. They misunderstand the financial implications. I think we're a household that we're. Oh, you would never spend, spend more than you take in. We're not a household.

[Michael Batnick]

Folksy politicians, they, they're like, you wouldn't run your household finances like that. We're not A household.

[Josh Brown]

Households can't print their own money. By the way, for the record, we're with you. We are not the type of people that spend any second thinking about the deficit for the most part.

[Steve Eisman]

I mean, I just find it funny at this point. I mean, put it this way, you know, one criticism of me as an investor, if it would be that I can at times be too early.

[Michael Batnick]

Yeah.

[Steve Eisman]

And as we all know in our business, if you're too early during that time, you're wrong.

[Michael Batnick]

Remember the Simpson Bulls deficit? Was that about. That was about the deficit. Right. Those two guys were doing like a national tour. Yeah, okay. All right.

[Steve Eisman]

But I know it'd been 40 years too early. I mean, this debate about the deficit going on for 40, you know, when you make a prediction for 30 to 40 years and you've been wrong for 30 to 40 years, you know, you should just be a little quiet about it, have some humility.

[Josh Brown]

So you're not worried that it's 1937?

[Steve Eisman]

That's ridiculous.

[Michael Batnick]

Well, wait a minute, wait a minute. One thing that's true is we haven't run a deficit like this outside of a recession. So.

[Steve Eisman]

Okay, that's a factual statement.

[Michael Batnick]

So what? So in other words, God forbid we have one. Which is very possible. I'm not going to say probable, but possible. The fiscal policy response to that may be constrained by the fact that we're going into a recession with. Why would it record straight deficit? Well, because there is. I would say, most people would say you should not make this worse. That's why you might be constrained.

[Steve Eisman]

I mean, not make the deficit worse. No, make the economy worse by spending money.

[Michael Batnick]

Make the fiscal situation overall worse by. Listen, I'm not, I'm not saying.

[Steve Eisman]

They said that in 1937 and they cut the deficit back then and we went back into the depression. That was a good decision.

[Josh Brown]

There's this nonsensical narrative that foreign holders are going to. Or are they going dumping our bonds? John, chart on, please.

[Michael Batnick]

Look.

[Josh Brown]

So the Wall Street Journal just did a great piece on this and they show foreign holders has gone sideways. Not down, not collapsing, not anything like that since 2020. It's going sideways.

[Steve Eisman]

Okay, I'm.

[Josh Brown]

So, I'm. Yeah. Where are they going?

[Steve Eisman]

Where are they going?

[Michael Batnick]

Right.

[Steve Eisman]

They're not going to the euro.

[Michael Batnick]

Can we go back a couple of charts? One of the things that we have been just pointing out casually about this topic is that we are the holders of the debt and it's kind of an asset for if you're the holder of this debt, there's two sides to it and it's an asset, the wealth management space. We're loaded with Treasuries. Everybody's got Treasuries. Somebody's getting paid as a result of this and it is in some way contributing to the economy. So it's not a situation where China owns 100% of the debt.

[Josh Brown]

Josh made the case a couple years ago that higher rates are actually stimulative because of all the cash coming in.

[Michael Batnick]

And people did not like that. People did not like that hearing that.

[Steve Eisman]

Rich people were spending more money.

[Josh Brown]

Jeff Gundlach did not like that.

[Steve Eisman]

Yeah, Jeff. The higher rates has hurt the housing market.

[Michael Batnick]

That's correct, the housing market. But people that own a lot of Treasuries, I would argue got a wealth effect. They got a stock market wealth effect and then they got a cash wealth effect. Like, holy shit, my bank account is literally spewing money. When was the last time you saw that in risk free assets? It's been 18 years. Ish. Put this size of debt held by the public up, nothing to see here.

[Steve Eisman]

It's a dollar number, right?

[Michael Batnick]

Yeah, yeah. No, it's 100% of GDP.

[Steve Eisman]

Japan is a 240.

[Michael Batnick]

Yeah.

[Steve Eisman]

So who's got lower rates?

[Michael Batnick]

Right. Okay. All right.

[Steve Eisman]

All I think is this is a lot more complicated than.

[Michael Batnick]

Sure.

[Steve Eisman]

Of course, Armageddon happens.

[Josh Brown]

It is generally a waste of time. It's mental masturbation, I think.

[Michael Batnick]

Well, let's waste time on one more.

[Steve Eisman]

They get me on. Yeah, they put me on CNBC all the time because I'm the only person who comes on and says I'm not worried about.

[Michael Batnick]

This is the federal deficit as a percent of gdp.

[Steve Eisman]

Okay.

[Michael Batnick]

Nothing to see here. Okay. No, I'm glad you're clearing. I'm glad you're clearing this up for us.

[Steve Eisman]

Just a number, you know, like I said. When has the US Economy ever been more dynamic in our lifetimes? Never.

[Michael Batnick]

Here's China. Just this is the other thing that they scare people with that we're in hock to China and they're going to dump all their Treasuries.

[Steve Eisman]

Where are they going to go?

[Michael Batnick]

Nowhere. Their FX reserves demand that they hold Treasuries. They might hold less. This they could buy.

[Steve Eisman]

Sean, we have buy stablecoins 6 and 7.

[Michael Batnick]

So this is the gradual, very gradual decline of China holdings of U.S. treasury securities. And the next one is their recent selling. Okay, okay. We could all. We could live with it. Let's do. Can we talk about the labor market?

[Steve Eisman]

It's your Show.

[Michael Batnick]

Okay. Do you have thoughts on the labor market? How do you. How do you feel? Because we got a. We got a. We got a continuing claims number that is now starting to take off.

[Steve Eisman]

I mean, I don't think so much about the labor market. I think much more about, you know, what President Trump is doing about tariffs and whether there'll be a trade war.

[Michael Batnick]

Okay.

[Steve Eisman]

That's. That is the only thing that's important. Important. Right.

[Michael Batnick]

That's the thing that will impact this.

[Steve Eisman]

If there's. If there's no trade war, we'll be growing for years.

[Michael Batnick]

Yeah.

[Steve Eisman]

And if there is a trade war, there'll be a global recession, and it's binary, and I don't know how to handicap that.

[Michael Batnick]

So weekly claims for unemployment benefits are now at their highest level since November 2021. Okay, let's put this up really quickly. The blue line is continuing claims, which is breaking out. The green is a little bit elevated. That's initial claims looking like probably a breakout. I think the salient point here is it has never been harder to get rehired once, getting laid off as it is right now in the post pandemic period. I don't know, you don't feel as though anything has materially. And I don't know how much of this is tariffs, how much is AI, to be honest. But it's harder to get rehired. Not yet. Okay.

[Steve Eisman]

It's way too early.

[Michael Batnick]

Okay.

[Josh Brown]

So where are you with the tariff situation?

[Steve Eisman]

You know, there's a great show on. On Amazon called Reacher.

[Michael Batnick]

I love that show.

[Steve Eisman]

And Reacher has this line where he says, in any investigation, the details matter.

[Michael Batnick]

Yeah.

[Steve Eisman]

And that equally applies to trade negotiations. The details really matter.

[Michael Batnick]

Okay.

[Steve Eisman]

You know, on the one hand, the US Has a big advantage over everybody in that of all developed countries, we have the lowest percentage of GDP coming from. From exports. It's only 11%. Everybody else in the developed world, including China's, is 30 plus.

[Michael Batnick]

They have to sell to others and.

[Steve Eisman]

They need to sell to us.

[Michael Batnick]

Yeah.

[Steve Eisman]

So I'll come to Europe in a second. So we have a big advantage over China, but China has controls all those rare earth metals.

[Michael Batnick]

Yeah.

[Steve Eisman]

That's their card. I don't know how to handicap that. I really don't.

[Michael Batnick]

Well, I think we fixed that part.

[Steve Eisman]

I don't think we fixed anything.

[Michael Batnick]

The sons and daughters of the Chinese Communist Party can go to Harvard and we get the rare earths. That's what they just said.

[Steve Eisman]

And that's what we were before all these negotiations. That's not what President Trump Wants. Okay, so you know, like I said, they just started negotiating. All they agreed to this week is to continue negotiating.

[Michael Batnick]

Yes, it was somewhere. It was a landlord agreement. Keep talking.

[Steve Eisman]

Landmark agreement. Let's keep talking. Okay, Keep talking. And so I have no idea how to handicap US versus China. I think US versus Europe in some ways is more complicated than, than US versus China because the EU commission has authority over tariffs and they actually offered before April 2nd to cut all tariffs to zero. And President Trump told him to go take a hike. Cuz that's not the issue. The issue is everything else. Protectionism, vhavor industries, all these regulations, et cetera, et cetera. And what I've learned is that each country in Europe, over issues that they care deeply about, has an effective veto. So let's say we wanted to get more agricultural products into France, France says no, that's the end of the conversation. Yeah, so negotiating with Europe's like herding cats. So I don't know how that's going to go. I just think these negotiations are much more complicated than people want to believe. We'll see. Maybe it'll all come out okay.

[Michael Batnick]

So in other words, in each of these countries in the eu, so the eu, so Ursula van Leyden or whatever can say whatever she wants, but then Germany really cares about its auto industry. The Italians really care about, I would assume products, agricultural products and cars.

[Steve Eisman]

And if they say no, it's no right.

[Michael Batnick]

So then you have a deal with the eu, but at the country there's.

[Steve Eisman]

No deal with the EU if you get vetoes from all these countries.

[Michael Batnick]

You know what I learned during this whole thing that I thought was crazy? In Canada, the provinces tariff each other. Did you know that?

[Steve Eisman]

I didn't know that.

[Michael Batnick]

It's insane. Like, like if you're trying to sell something from Nova Scotia in Vancouver, there are tariffs.

[Steve Eisman]

Oh, I had no idea.

[Michael Batnick]

And so one of the, one of the politicians said, like how do we fight back against the United States? Well, one answer might be to stop fighting amongst each other.

[Josh Brown]

So Steve, are you surprised that given that there is still uncertainty with tariffs, that the S and P is just less than 2% from all time highs? It seems to be not perturbed at all.

[Steve Eisman]

I'm surprised and yet not surprised. I mean it's been my experience that, you know, when something new happens, the street will price in the ultimate result immediately. And that's what happened by April 8th. And look, the US economy is incredibly resilient. The economy wasn't going to roll over unless there actually is trade War. So all these companies reported results were okay. And a lot of people pulled guidance, but okay, who cares? And so they're not. Market's not going to go down unless it's at actual trade.

[Michael Batnick]

15% of S& P companies pulled guidance, which was way less. I would have expected. I would have expected way more. And it turns out that companies just kind of bluffed their way through April and May. Didn't say much.

[Steve Eisman]

But look, it's having an impact. I mean, I know we had data that showed that imports from China are down 35%. Orders were down 65%. That's going to start impacting things probably when the back to school starts.

[Michael Batnick]

This is Donald Trump. Yesterday. Our deal with China is done, subject to final approval with President Xi and me full magnets. And any necessary rare earths will be supplied up front by China. Likewise, we will provide China what was agreed to, including Chinese students, using our colleges and universities. Parentheses, which has always been good with me. Exclamation point and end parentheses. We are getting a total of 55% tariffs. China is getting 10%. Relationship is excellent. Thank you for your attention to this matter. That's the president. So he thinks it's done.

[Steve Eisman]

I mean, done is. We got what you. That we have 55% tariffs. If they want to. If they want to actually have a real deal to get tariffs below that.

[Michael Batnick]

Okay. Did you read the op ed in the Wall Street Journal?

[Steve Eisman]

I generally don't read the op EDS in the Wall Street Journal. Okay, tell me what they said.

[Michael Batnick]

For good reason. They said China. They said Trump has no strategy and basically China had more leverage than we did. And I think that's an overstatement. Yeah. You think this is going to continue for months and months and quarters. And quarters.

[Steve Eisman]

I think it's going to continue easily through the summer.

[Michael Batnick]

Is the uncertainty linger or it's really now just about the actual cost of goods?

[Steve Eisman]

You know what? I don't know. I can't make that kind of prediction.

[Josh Brown]

So this is a good timing. Torsten Slok had a deck about China and this surprised me. He has this chart showing the share of Chinese exports to the us, EU and Japan and versus Japan. Excuse me. So us. I'm sorry? US versus EU and Japan. And the share of exports are going down to the us, EU and Japan versus the rest of the world. So China is less reliant on us buying their shit versus the rest of the world, which surprised me.

[Michael Batnick]

That is surprising.

[Steve Eisman]

You know, that's an overstatement because some of that stuff is shipping Stuff to Vietnam and Cambodia, which then comes to us. So, you know, officially China's. The percentage of Chinese GDP from exports is 19%.

[Josh Brown]

It's a lot.

[Steve Eisman]

But my guess is if you add in all the other stuff that they ship outside the country, that eventually ends up here, it's probably 30.

[Michael Batnick]

So here's the results of the first earnings season during the trade war. Put the chart up for us, John.

[Steve Eisman]

Has not been a trade war yet.

[Michael Batnick]

Okay, the opening trade info, right? This is the earnings surprises. The max 7, literally off the charts. But the S&P 500 overall, a lot of earnings surprise. But then when you actually go to the s and P 493, the surprises are actually calming down relative to what they were. The upside surprises. Dubrovco Lakos put out just a rundown of the earnings season. I'll share this with you. An earnings surprise of 7.6% versus only 4% for the prior four quarters. So this is a pretty good season for upside surprises. Earnings per share for Q1 revised higher, up to 12% on forward guidance. So this is the part that I think is important. 57% of companies reiterated, 25% raised their guidance, probably all software companies, and 15% cut guidance. The share of companies cutting guidance in Q1 was actually the lowest in five years.

[Josh Brown]

That's shocking.

[Michael Batnick]

Only 1% of companies withdrew guidance completely. I was totally shocked by that data. I won't second guess it. I'll assume it's true.

[Steve Eisman]

It doesn't matter.

[Michael Batnick]

It doesn't?

[Josh Brown]

Why?

[Steve Eisman]

Because if there's a trade war, we'll have a recession. If there's no trade war, we'll be fine. So you were back to where we started.

[Michael Batnick]

So if you knew the outcome, it's that binary. There's no completely binary. There's no degrees of trade war.

[Josh Brown]

So if you knew the outcome, you would nail the trade.

[Steve Eisman]

I mean, look, I'm long only I'm not fully invested, but I'm pretty invested. I think long term you can own stocks and we'll be fine regardless. But am I pounding the table? Not pounding the table. I don't know how to handicap this. It's not.

[Michael Batnick]

Look, nobody does, right?

[Steve Eisman]

You know what? Read books on World War I. Nobody wanted World War I. There was not a single country in Europe that said, you know what? We gotta go to war. But because of all the reciprocal treaties that they had, they eventually sort of fell into it. Yeah, it dragged and then it was a disaster. So that's. Something like that could happen here. Is that the biggest risk that's the only risk.

[Michael Batnick]

It's the only risk. That's what I think right now. What else do you. I mean, besides the usual geopolitics shit?

[Steve Eisman]

Well, the other stuff people talk about is the deficit, which we get back to that. I don't worry about that and the trade war, but I don't worry about the deficit. I worry about the trade war.

[Michael Batnick]

You know what's the good news? We're only up 2% on the year, on the S&P 500. But with blistering earnings growth, at least in Q1, the bears would say it's pull forward. And wait till you see Q2 and maybe they'll be right.

[Steve Eisman]

I don't think it was pull forward.

[Michael Batnick]

Okay, so if it's not, then we should be up a lot more.

[Steve Eisman]

Yeah, but if there's a trade where we won't be.

[Michael Batnick]

So like, he's not going to do it though.

[Steve Eisman]

How do you know? It doesn't matter. Things like this can get out of your control, just like. That's why I brought up the World War I analogy. Nobody wants a trade war, but if. If China plays hardball and Europe plays hardball, we could end up there.

[Michael Batnick]

Even if. Even if it's mutual. Mutual destruction for everyone.

[Steve Eisman]

What was world economy?

[Michael Batnick]

Yeah. All right, so that's the big. So that's the big.

[Steve Eisman]

Read the Guns of August by Barbara Tuckman. It's an old classic.

[Michael Batnick]

I actually did read that.

[Steve Eisman]

Of course you did. You're almost educated.

[Michael Batnick]

Almost close. I read Through a Distant Mirror. Through a Distant mirror and then I said, what else has she read?

[Steve Eisman]

That's exactly my experience. I actually just reread it.

[Michael Batnick]

Okay. Jim Chanos told me about that book. Through a Distant Mirror, actually.

[Steve Eisman]

Yeah, it was a good book. All right.

[Michael Batnick]

Do you know what Sneakflation is?

[Steve Eisman]

Sneakflation?

[Michael Batnick]

Sneakflation.

[Steve Eisman]

New one on me.

[Michael Batnick]

Can I give you something else to worry about?

[Steve Eisman]

Yeah, please. God, I'm really upset.

[Michael Batnick]

This might be your next big short. Uh huh. This is bank of America today. Yesterday's May CPI report was remarkably benign. The effects of tariffs were evident in a few components like household furnishing. Whatever, no big deal. But there's another way the tariff impact on inflation could play out. We call it sneakflation. The idea is that instead of raising prices immediately, firms might sneak in larger than usual annual price increases next year to account for the tariffs. And these price hikes might be spread across a variety of products rather than just the ones that are affected by tariffs. Meaning. All right, we can't go all the way on the price hike for this. Cause everyone's gonna know, let's raise prices on other shit and kind of balance out the scales.

[Steve Eisman]

So in other words, if there's a trade war and there are high tariffs, it's a problem. We're back to the original question. Okay, you're just reframing the question, but it's the same question. All right, Apple, that's a problem.

[Michael Batnick]

Okay. I agree with you, but I don't know the extent to which I. I'm showing.

[Steve Eisman]

So I'm gonna brag about my podcast a little bit.

[Michael Batnick]

Please do.

[Steve Eisman]

So I interviewed. I read a lot. So I read this book recently by the guy. His name is Patrick McGee. He was, or he still is technically, the Apple reporter for the ft.

[Michael Batnick]

Okay.

[Steve Eisman]

And he just published a book, and it's called Apple in China. And I interviewed him on my podcast a couple of weeks ago, and the book is great. I'd recommend everybody read it.

[Josh Brown]

Where do people find your podcast? What's it called?

[Steve Eisman]

It's called the Real Eisman Playbook. Thank you for asking.

[Josh Brown]

You're welcome.

[Steve Eisman]

And basically what he said, there was never a moment where there was like a meeting at Apple where somebody had a deck, and they had this whole meeting, and they all sat down and they said, oh, we should manufacture in China. That's not how it happened. It evolved over time, and gradually their independent contractors moved to China. And then they woke up one day around 2010 and 11, they realized, wow, we're doing everything in China. Apple manufactures almost 100% of its products in China. When they say they manufacture in India, it's nonsense. Everything is built in China, and then some stuff is shipped to India and they reassemble it. So Apple is in China. So forget about Apple losing share in China. We could talk about that. But the biggest problem is Apple's completely beholden to China.

[Michael Batnick]

Foxconn. Like, they can't. Right.

[Steve Eisman]

If. If something bad happens between the US And China, the first casualty is Apple.

[Michael Batnick]

Yeah.

[Josh Brown]

And it reacted that way. The stock did. During the trade war talk.

[Steve Eisman]

Yeah, it should.

[Michael Batnick]

It's the second worst performer of the Mag 7 after Tesla.

[Steve Eisman]

Yes.

[Michael Batnick]

Year to date. Arguably. It should be like. Like everyone would agree. It's a pretty acute thing to have to thread that needle. They need to sell a lot of product in China, and they make all of their products in China.

[Steve Eisman]

And by the way, the Chinese are making better phones than them now.

[Michael Batnick]

Yeah.

[Steve Eisman]

It's one thing he pointed out. He said that Huawei now makes a. What did he call It a triple folding phone.

[Michael Batnick]

Yeah, I've seen it.

[Steve Eisman]

And so you unfold it, and then you unfold it again, and it's as big as an iPad.

[Michael Batnick]

Yeah.

[Steve Eisman]

And Apple is not coming out with just a folding phone until 2026.

[Michael Batnick]

Yeah. Instead, they created this thing that makes the. The icons on your phone look like they're liquid glass. That was Apple's big revelation. That was that big at WWTC.

[Steve Eisman]

That's nice.

[Michael Batnick]

Why is the stock selling at 35 times earnings? Can you, for the life of you, figure out why? I'm not sure why, Because I own it. Okay. But, like, seriously, what. What is the investor class seeing that?

[Steve Eisman]

I think people see this as, like, the global staple.

[Michael Batnick]

Yeah. That you own your consumer staple.

[Steve Eisman]

We used to be Procter and Gamble. Yeah. You don't want to own property and gamble. You want to own something that you can rely on. I mean, look, we all use iPhones. The service business keeps growing. If they ever get the AI thing working, it'll be better. But I think it's fair to say that they've really not innovated much.

[Michael Batnick]

Berkshire Hathaway sold, I think, two thirds of their stake and looks like they're going even lower.

[Steve Eisman]

Oh, I didn't know that.

[Michael Batnick]

Yeah. Almost at the top. People don't talk about Warren Buffett pulling off, like, a greatest trade ever, but I think this qualifies.

[Steve Eisman]

Pretty good one.

[Michael Batnick]

He bought at the bottom, sold at the top is pretty damn good.

[Steve Eisman]

Yeah.

[Michael Batnick]

Do you think that Tim Cook has what it takes to get through this trade war? China, US it's not up to him. Yeah.

[Steve Eisman]

You know, there's sometimes when you play chess, you have no moves. Right. They're 100% in China. Their entire ecosystem, Manufacturing ecosystem, which is brilliant, is in China. It would take five to 10 years to build an ecosystem someplace else, whether that's the US Or India. I don't care. That's how long it would take. Until then, they're stuck. They have no ability to maneuver between the US And China. They're completely beholden to that.

[Michael Batnick]

Apple only makes. Apple only makes one product in the United States. Of note, in Houston, they make the Mac Pro.

[Steve Eisman]

Yes. And in the book, they described how they were having such troubles building the Mac Pro in Houston. In Houston, that they had to bring guys from Foxconn into Houston to help them build it.

[Michael Batnick]

Okay, so you think this is problematic for the market or just for Apple shareholders?

[Steve Eisman]

I think it's problematic for Apple shareholders.

[Michael Batnick]

Okay. But it doesn't go beyond that. It's an Apple specific.

[Steve Eisman]

Very Apple specific story.

[Michael Batnick]

How do you think it ends?

[Steve Eisman]

Tell me how the trade war goes. I'll tell you how it ends.

[Michael Batnick]

So it's that binary?

[Steve Eisman]

It's that binary.

[Michael Batnick]

Okay. Can we talk about banks?

[Steve Eisman]

We could talk about anything you want your show.

[Michael Batnick]

I'm Long JP Morgan.

[Steve Eisman]

Okay.

[Michael Batnick]

Very, very, very long term shareholder. Long Berkshire Hathaway. Not a bank, but used to have big stakes in all the banks. I don't really follow the others very closely.

[Steve Eisman]

Most people don't.

[Michael Batnick]

Okay. And it's not because I don't think there's opportunity. I just, I feel like If I own J.P. morgan, why do I need to own Citi or US Bank?

[Steve Eisman]

You don't.

[Michael Batnick]

You don't, Right?

[Steve Eisman]

You don't.

[Michael Batnick]

Okay. Why are these stocks doing so well? Why the financial services sector doing so well this year? And are you, Are you overall, like, are you bullish?

[Steve Eisman]

I mean, I have two theories about financials right now. I mean, on the large cap side, you know, if there's no trade war, you got a president who has a very deregulatory bent. So therefore the, you know, the IPO market should come back. The M and A market will come back and own Goldman. Own JP Morgan on Morgan Stanley.

[Michael Batnick]

That.

[Steve Eisman]

That's how you play that.

[Michael Batnick]

Okay.

[Steve Eisman]

And that's it. You know, if you want to own something in payments, own Visa or MasterCard.

[Michael Batnick]

And you still like those names.

[Steve Eisman]

Yeah, and ignore the others.

[Michael Batnick]

Ignore everything else.

[Steve Eisman]

Just ignore everything else.

[Michael Batnick]

Okay.

[Steve Eisman]

But I think there's a potential for a regional bank story, which is, nobody's bullish on this. Nobody.

[Michael Batnick]

Okay.

[Steve Eisman]

And I don't own any at this point because a lot needs to happen. But I think there's a potential story here, which is that there hasn't been an M and A wave of banks in the United States literally since the 90s. And it's been very much discouraged post Dodd Frank. So you've had very, very little M and today. But I actually think as a country, we need one. And the reason why I say that is here's an interesting statistic. In 2007, JP Morgan's share of deposits in the United States was 7%. Today it's close to 14. Right now. There are a couple of reasons for that. Number one is the cost of regulation is very, very high and they can bear that more easily. But number two, which is probably even more important is the cost of technology has exploded and you need to be really big so you can pay for it. So if we do nothing and we keep the current policies and there's no M and A wave. What's going to happen is JP Morgan, Wells Fargo and a handful of others will continue to take market share. The other regional banks are going to wither on the vine and what you'll have less is a couple of very, very large banks and some community banks.

[Josh Brown]

Why is that bad?

[Steve Eisman]

Because I would like more. I don't want to be Canada where it's a cartel. It's basically a cartel.

[Michael Batnick]

Yeah.

[Steve Eisman]

And so therefore those banks get to charge a lot more to customers.

[Michael Batnick]

They run, they run the government effect. They run their own regulation effect there.

[Steve Eisman]

So effectively.

[Michael Batnick]

Yeah.

[Josh Brown]

So I want to show.

[Steve Eisman]

Let me just finish. So what I think needs to happen is you need to have companies like Comerica and US Bancorp and we could drop whatever list you want, merge because otherwise they're not going to have enough money to compete.

[Josh Brown]

They can't compete. Yeah. So I want to show you a chart that doesn't quite counter what you're saying, but I thought was interesting. Surprised me if again from Torsten Slok you could comment on this. Small banks account for about 30% of total deposits in the banking sector. And the share has been rising since. Oh, that's like the really small bank.

[Steve Eisman]

But I think you put up like the mid cap banks, it'd be down.

[Michael Batnick]

Okay, so regionals as opposed to thrifts.

[Steve Eisman]

There are no thrifts anymore. There's community banks.

[Michael Batnick]

Yeah, the community banks, like a thousand of those tickers, they're all like in the Russell 2000, they have no market cap. Nobody was coverage. Yeah. It really seems futile. And now you have these Neo banks. So today we had an IPO go up 80% or something. Chime Chime's target demographic is the sub $100,000 income person. Not sure why people are so bullish on this. They're going to charge people interchange fees. That's their, that's their business model.

[Steve Eisman]

Right.

[Michael Batnick]

But that's, that's a hot stock. Then you've got, then you've got like the Venmos and you know, PayPal and, and all of the shopping cart payment system.

[Steve Eisman]

You want to stay at my view.

[Michael Batnick]

Yeah.

[Steve Eisman]

You want to stay away from everything in payments except Visa, MasterCard. Everybody's eating each other's lunch.

[Michael Batnick]

Yeah.

[Steve Eisman]

They're all going after each other's space. Block, Toast, Apple Pay. Apple Pay is in there.

[Michael Batnick]

Shopify, Shop Pay.

[Steve Eisman]

To be able to make it so complicated that to be able to make a decision as to whether you'd want to buy block or toast, you literally need to be able to like write a dissertation. It's just that complicated. Or you could just say, I'll own.

[Michael Batnick]

Visa and MasterCard, I own toast. And yeah, okay, the bulk case is inertia. You get to a certain critical mass of restaurants. These people don't rip out payment systems.

[Steve Eisman]

That's possible.

[Michael Batnick]

Yeah.

[Steve Eisman]

But you know, Visa and MasterCard keep growing because I mean the joke I always have about Visa, MasterCard we could talk about stablecoins is since they went public in 2001, I'd say every three to four years a bunch of companies go public and they come in and they say, we are going to disenfranchise Visa, MasterCard.

[Michael Batnick]

Yeah, every time I've been to this.

[Steve Eisman]

Meeting a thousand times, I don't care, name the company, I've been to that meeting.

[Josh Brown]

It's like the boom terminal.

[Steve Eisman]

And then like two years later they come back and they go, not going to happen. We're working with them. So you know, stablecoin is the latest in that there's a role for Stablecoin but I just don't believe you're going to be able to disenfranchised fees.

[Michael Batnick]

Can we do like a mini financials lightning round?

[Josh Brown]

Well, yeah, let me, let me. This is actually a good segue to this. So one of the areas that I don't want to say people are calling it the next big short, that's a bit absurd. But an area that is getting attention is private Credit. So chart 19, John, please. Again from Torsing Slack. He shows lending to corporates is flat for both small and large banks. To which I would say, well, yes, private credit.

[Steve Eisman]

Right.

[Josh Brown]

You have any thoughts on that space? Because that is getting a hell of a lot of attention, especially from wealth managers.

[Steve Eisman]

I mean, I don't have a strong feeling about it only because I have no data. So when I was short subprime paper, I subscribed to the Moody's database and every month, in the middle of the month over a two day period, there was a massive data dump. Every securitization reported all its credit statistics. So you could see is it getting worse, is it getting better? And every month it got worse. So I felt better here. I know the theory.

[Michael Batnick]

What is the theory? That is too many lenders.

[Steve Eisman]

Too many lenders, Lax standards, unregulated, it's going to blow up. Well, I can't say that there's an.

[Michael Batnick]

Element of that, there's an element of that syndication idea here. What's happening is that the risk is being borne. By now wealth management Average millionaires who are being put into these funds, they are now taking the risk that banks aren't allowed to take and that the fund sponsors.

[Steve Eisman]

Right. So could they take, could that blow up? Possible. Yeah, but I don't have any data to have an opinion.

[Michael Batnick]

You know, it's so funny. This whole growth of private credit is the direct, one of the most obvious, direct consequences of Dodd Frank and that's right, we did that. Like we decided anyone, we didn't want.

[Steve Eisman]

Our banks to have that much risk.

[Michael Batnick]

Anyone above our banks should be lending money and well, that's what you get. So I want to ask you about what do you think of Goldman and Morgan Stanley these days? Specifically Goldman retrenched completely from this mainstream consumer push that they were making during the pandemic. They got away from the credit card with Apple, they shut down the online, a lot of the online banking stuff that they wanted to do. The stock price recovered incredibly well. The guy running it seems like he's back on top. David Solomon appears to be back on top. What do you think of Goldman's place in this new world? Morgan Stanley's place. These stocks have done really well off of the lows.

[Steve Eisman]

Goldman is back in terms of its business model, back to where it was before it started this whole process. I just think of it as a vehicle you want to play, you know, trading volume, m and a. IPOs.

[Michael Batnick]

Yeah.

[Steve Eisman]

You buy Goldman. I think Morgan Stanley has a more durable business model and much more diversified, has higher roe.

[Michael Batnick]

Yeah.

[Steve Eisman]

You know, if you look at Goldman, despite the power of the earnings, the ROE is not very high. Yeah, it's like 12% or something like that. I don't think I, I could be wrong. I just don't think the roe is that high. Morgan Stanley's is considerably. JP Morgan 17, 18%.

[Michael Batnick]

Yeah.

[Steve Eisman]

So I think, I think of Goldman is more of a trading vehicle too. You want to play those themes, but I don't think of it as a long term investment.

[Michael Batnick]

Wells Fargo just got out of the doghouse, out of harem. Yeah.

[Steve Eisman]

So you know what Hiram is?

[Michael Batnick]

No, no, it's a great Yiddish word.

[Steve Eisman]

But it's basically you were excommunicated from the community.

[Michael Batnick]

Yeah. So they had a growth limit put on them.

[Steve Eisman]

Right. They were capped. I didn't know you could do that to a bank. Yeah, they had an asset cap put on them. They were not allowed to grow their balance sheet by a single dollar.

[Michael Batnick]

Yeah. So that was penance for the fake account scandal, which is already hard to believe. It's 10 years ago.

[Josh Brown]

Wow.

[Michael Batnick]

Or five years.

[Steve Eisman]

By the way, one of the greatest things I ever saw, ever was when during the scandal, John Stumpf, who was the chairman of Wells Fargo at the time, testified in front of the Senate.

[Michael Batnick]

Yeah.

[Steve Eisman]

And Elizabeth Warren, oh my God, she, she obliterated him. And he had to resign afterwards.

[Michael Batnick]

Yeah. Well, back to what you said originally about incentives. That's, that's the case study. Here's a situation where we're going to pay people for how many accounts, how many accounts get opened?

[Steve Eisman]

Right.

[Michael Batnick]

Well, what, what the you think is going to happen? There's going to be a lot of accounts open. All right, so there. So you like the stock. You're constructive on it?

[Steve Eisman]

I think so. It's not bad bank.

[Michael Batnick]

The guy, the guy running it, Charlie Scharf, he's a former jp, jp diamond.

[Steve Eisman]

Acolyte, former JP Morgan. And then he also has had a visa for a while.

[Michael Batnick]

Okay, so you're, you're bullish or you're not sure.

[Steve Eisman]

You know, I don't know.

[Josh Brown]

Any opinion on, on, on. Ally, speaking of subprime, they service a lot of the subprime auto borrowers who had been having a tough time lately. The stock seems to be like, you know, sort of a no man's land. But any opinion there?

[Steve Eisman]

I don't think anybody really cares about stocks like that anymore. I really don't. Other than specialists.

[Michael Batnick]

Quick question.

[Steve Eisman]

Specialists. I don't think people care. Maybe, maybe you own it, but.

[Michael Batnick]

I'm sorry, no, I know circle is the seventh largest IPO since 1980. Okay, I didn't know that. I had to double check it. This is a very big deal. Last week, for some reason, I don't quite understand why everyone's so excited about it. I do. Okay, so I do understand this part of it. There is a need for foreign investors who don't want to be in the dollar system, but like the stability of the value of the dollar. And this is the product for them. The other aspect of this.

[Steve Eisman]

Well, I don't know about that.

[Michael Batnick]

Okay, the other aspect of this is Circle is the house stablecoin inside of Coinbase, which is the biggest brokerage slash exchange. Okay.

[Steve Eisman]

The biggest stablecoin is Tether by a lot.

[Michael Batnick]

Yes. Not at Coinbase, but yes, overall.

[Steve Eisman]

But the problem with Tether is that Tether, I think is based like in El Salvador store or something.

[Michael Batnick]

Yeah. And so as most great institutions are.

[Steve Eisman]

Exactly right. And so you know what's supposed to happen when you do a state buy a stable coin is you, you buy a stable coin from whoever you're buying it from, and they take that money and they put it in, let's say, overnight Treasuries, dollar for dollar. So it's. It's worth a dollar.

[Michael Batnick]

Yeah.

[Steve Eisman]

So with respect to Tether Circle. Oh, Circle Circle. They're based in the U.S. they're regulated here. Their custody banks can be trusted. So I believe that Circle dollar is a dollar.

[Michael Batnick]

Right.

[Steve Eisman]

Would I stake my life on tether doing the right thing all the time or maybe taking a little.

[Michael Batnick]

They won't tell people.

[Steve Eisman]

I won't tell anybody. So how would I know? So, yeah, that's part of the problem with stablecoins right now.

[Michael Batnick]

So that could be something. So their, their balance sheet could be as innocuous as, like, commercial paper and maybe longer dated Treasuries.

[Steve Eisman]

Or I could be investing in Russian rubles, for all I know.

[Michael Batnick]

So that's the popularity of circle is that the alternative is so much worse.

[Steve Eisman]

But the issue is how big can stablecoin become in the payment system? And here's where I actually had a podcast with this about someone who's kind of an expert, and this we had a real give and take about it. What I said to him was, look, let's start with just the consumer. You know, the old days, if you wanted to pay somebody with Venmo, that person needed to have Venmo.

[Michael Batnick]

Yeah.

[Steve Eisman]

But today, because of Visa plus, I have Venmo, you have cash plus, no matter, you can pay. So that's seamless. And then Visa has something called Visa Direct. So if one company is paying another company, you're already using the Visa Rails. They're all over the fricking planet Earth.

[Michael Batnick]

Yeah.

[Steve Eisman]

So you want to pay somebody, use Visa Rec bad. A Bing boom. So do I think that it's likely that stablecoin is going to disenfranchise Visa and MasterCard?

[Michael Batnick]

Like, will that be used for traditional finance payments?

[Josh Brown]

Payments?

[Steve Eisman]

I doubt it.

[Michael Batnick]

Okay.

[Steve Eisman]

But what my guest pointed out, Raul Jindal of Autonomous, was that this could be a big business for remittances. You want to send your money from here to India, cross border, you don't need to use Wells Fargo. You could use staple coins. I could see that.

[Michael Batnick]

So we're going to disrupt Western Union.

[Josh Brown]

Sure.

[Michael Batnick]

Okay.

[Steve Eisman]

Okay.

[Michael Batnick]

That's a big business.

[Josh Brown]

Circle's market cap is a third the size of Coinbase right out of the gate.

[Michael Batnick]

Well, what. So, but I guess they have earnings. Circle, they have earnings, but it's like, it's a money market fund. Like, in other words, how much could you Possibly make. Even if you get a trillion dollars in circle.

[Josh Brown]

4%.

[Michael Batnick]

4% on. I guess. Yeah.

[Steve Eisman]

That's a high. That's a high fee.

[Josh Brown]

No, I'm saying that they're not paying. They don't pay interest.

[Michael Batnick]

They don't pay interest.

[Josh Brown]

What's their business model? That's not interesting.

[Steve Eisman]

Well, you're. Yeah, but you're also paying them in. If you, if you're buying a. A circle stablecoin, you're paying them in circles in some. In some crypto.

[Michael Batnick]

Now, you're foregoing the interest.

[Steve Eisman]

Oh, you're foregoing the interest.

[Michael Batnick]

That's what you know. And you're doing that so that you don't have to take a taxable gain in crypto.

[Steve Eisman]

Okay.

[Michael Batnick]

So it's a little bit of tax arbitrage, a little bit of international, not tax advice.

[Josh Brown]

I don't know if that's true.

[Michael Batnick]

Yeah.

[Steve Eisman]

So they're money market fund.

[Michael Batnick]

Yeah. Do not, do not take this as tax advice. All right. But you're not, you're not overly skeptical or negative about it. You're just. You're just not. You're just not in.

[Steve Eisman]

I just have question about how big is this really going to get?

[Michael Batnick]

Yeah. Okay. What do you think about the comeback of IPOs overall? I sort of feel like this is really hopeful. People are like, into IPOs again. Core weave was a great deal.

[Steve Eisman]

If there's a trade war, that'll. That'll stop it overnight.

[Michael Batnick]

Okay. It seemed like a good sign, though. It's not bad that people want to take risk again in new companies.

[Josh Brown]

You know, stocks that an Altima are about. My Internet's not loading very well. Nasdaq.

[Michael Batnick]

Yeah, I saw the stock. I saw that. That's what I bought.

[Steve Eisman]

The, all of the exchanges, they generally buy them when, when things get tough and the volatility is very high because trading volumes go up a lot.

[Michael Batnick]

Yeah. CME had a really good first half because they thrive on volatility and trading.

[Steve Eisman]

Right.

[Michael Batnick]

All right, so you're. So your overall big picture idea is things will be okay if there's no trade war.

[Steve Eisman]

Right.

[Michael Batnick]

There's a trade war. Forget everything because everything. Because all of a sudden there's just way too much uncertainty. And we'll see another uncertainty.

[Steve Eisman]

I think that'd be the recession damage.

[Michael Batnick]

Recession.

[Steve Eisman]

Yeah.

[Michael Batnick]

Okay. If you had to sum up, if you had the handicap, if you had. They put a probability on either case. What do you think? Where do you think you're at?

[Steve Eisman]

I. I don't even try in handicap.

[Michael Batnick]

You wouldn't Even.

[Steve Eisman]

I just. I don't even know how to. To.

[Michael Batnick]

You think it's 50 50, though?

[Steve Eisman]

I don't know. I don't know.

[Michael Batnick]

Okay. I don't either. I don't either. Jeff, on the show today.

[Steve Eisman]

Yeah.

[Michael Batnick]

All right. We were so thrilled to have you, and thank you so much for taking all our questions and even the ones that were meaningless.

[Steve Eisman]

We wanted to get you never any meaningless questions.

[Michael Batnick]

We wanted to get your take. So we always end. I don't know how you end your podcast. We. We always end our podcast asking people what they're most looking forward to. And it could be anything. Professional, personal. Whatever. Whatever's on your. Whatever's on your mind. What are you looking forward to?

[Steve Eisman]

Thing I'm most looking forward to is that my daughter is getting. One of my daughters is getting married next month.

[Josh Brown]

Good answer.

[Michael Batnick]

Good for you. You like the guy?

[Steve Eisman]

I do.

[Michael Batnick]

All right. Awesome wedding. Be in New York.

[Steve Eisman]

I didn't like the guy. I would be looking forward to the wedding.

[Michael Batnick]

Well, sometimes we have a choice, sometimes we don't. That's great news. And it's in New York.

[Steve Eisman]

Yes, it is.

[Michael Batnick]

Okay. And they're going to live here. They're going to stay, Stay, stay.

[Steve Eisman]

Local here is they're. All my kids are local.

[Michael Batnick]

Go for you. Is that the first of your kids to get married?

[Steve Eisman]

That is the first.

[Michael Batnick]

Okay. You got others on the Runway?

[Steve Eisman]

Not on the Runway?

[Michael Batnick]

Not. Okay. All right. This is great, man. Congratulations. That's awesome. I am going down to Florida. I'm looking forward to this weekend. I'm going to go set up my daughter's sophomore college apartment. She's at U Miami.

[Steve Eisman]

The daughter who's getting married went to UW Miami.

[Michael Batnick]

Is that right?

[Steve Eisman]

Yeah.

[Michael Batnick]

Okay. So, you know, there's no housing for sophomore girls. There's no sorority houses, so we got to set them up in an apartment building. It's Manhattan prices, basically. Yes. It's the most insane thing I've ever heard. I can't believe all these other kids. Parents are just going along with this. But I guess, what are you. What are you going to do?

[Steve Eisman]

Right?

[Michael Batnick]

So it's a great school, but I'm looking. I'm looking forward to helping out and doing dad stuff this weekend. Michael, what are you looking forward to?

[Josh Brown]

I'm looking forward to my last meal at Pig and Cow on the Lower east side. They're closing up shop, which is disappointing.

[Michael Batnick]

But you ever been there? Pig and. Pig and Cow?

[Steve Eisman]

No.

[Josh Brown]

They have an Upper west side location and a piggyback in the midtown.

[Michael Batnick]

No that's all. It's all closing.

[Josh Brown]

No, no, no, no, no, no.

[Michael Batnick]

Are you sure about this?

[Josh Brown]

100,000% sure.

[Michael Batnick]

Oh. All right.

[Steve Eisman]

And I am looking forward to the new Superman movie.

[Michael Batnick]

That's going to be so.

[Steve Eisman]

I think it looks good.

[Michael Batnick]

He's. He's an incredible filmmaker. James Gunn.

[Steve Eisman]

Yeah.

[Michael Batnick]

And they gave him the case.

[Steve Eisman]

He's had errors too, you know, like I would say the. The third Guardians of the Galaxy did. I almost walked out five times. I thought it was so boring I could die.

[Michael Batnick]

You didn't like how they finished it?

[Steve Eisman]

Listen, I need to understand something about me. Unlike you, I'm actually entitled to an opinion on this subject because I own one of the largest digital comic book collections on planet Earth.

[Michael Batnick]

I have a comic book collection. It's not digital.

[Josh Brown]

What's digital? What does that mean?

[Steve Eisman]

Literally on my iPad. Oh, dude, it's like. It's like a. It's like. It's like your Kindle got Kindle Books.

[Michael Batnick]

Dude.

[Steve Eisman]

I have company is owned by Amazon.

[Michael Batnick]

I have boxes of comic books.

[Steve Eisman]

How many comics do you think you have?

[Michael Batnick]

Thousands.

[Steve Eisman]

I have my digital comic book collection. As of yesterday, digital 11,300 comics.

[Michael Batnick]

These are NFT.

[Steve Eisman]

They're not NFTs. It's like reading a book. It's like having on your iPad your book that you can read your library.

[Michael Batnick]

In plastic with cardboard.

[Steve Eisman]

I'm one of the world leading experts on comic books. So when I give you an opinion about it, I'm a comic book movie. Okay.

[Josh Brown]

Fantastic Four going to be dog shit.

[Steve Eisman]

I don't know.

[Josh Brown]

Why can't they crack that code?

[Steve Eisman]

I don't know.

[Michael Batnick]

Because.

[Steve Eisman]

I don't know.

[Michael Batnick]

Because it wasn't a good comic book.

[Steve Eisman]

Wasn't a bad comic book.

[Michael Batnick]

No, it's just not great.

[Steve Eisman]

It's not great.

[Michael Batnick]

The ones that are good comic books are good. Movies are good movies.

[Steve Eisman]

I would say that the problem with all the Marvel movies is they don't have a story.

[Michael Batnick]

Well, now they're doing the time time hopping. The Red Hulk.

[Josh Brown]

The Red Hulk was horrendous.

[Steve Eisman]

Awful.

[Josh Brown]

Oh, my God.

[Steve Eisman]

And I'm actually not a big fan of the multiverse.

[Michael Batnick]

Everyone hates it. What's the best, Aside from Endgame and Infinity War, what's the best comic book movie you think?

[Josh Brown]

Iron Man.

[Steve Eisman]

Any era, the best comic book show ever is the boys.

[Michael Batnick]

Oh, I like that. I agree with that.

[Josh Brown]

What's your favorite movie? Comic book movie.

[Steve Eisman]

My favorite comic book.

[Josh Brown]

Or Batman Begins. Dark Knight.

[Michael Batnick]

I like the.

[Steve Eisman]

Maybe the Dark Knight trilogy.

[Josh Brown]

It's probably the right answer.

[Michael Batnick]

Oh, that's probably the right answer.

[Josh Brown]

Yeah.

[Michael Batnick]

So do you think that D.C. is going to go on this crazy run now?

[Steve Eisman]

I don't know. I hope so.

[Michael Batnick]

Okay. Because they have the right guy.

[Steve Eisman]

They probably have the right guy.

[Michael Batnick]

The problem is it's at Warner Brothers, and that's in disarray.

[Josh Brown]

But, dude, comic book movies, it's not hot anymore. It's enough.

[Steve Eisman]

They gotta try. They gotta make it hot again. We'll see. Let's see how the supreme movie goes.

[Michael Batnick]

All right, Steve Isman, thank you so much for doing this. I'm gonna tell people to go to the real Eisman playbook on your podcast feed of choice. Make sure you're subscribing to that. Do you use social media or not really?

[Steve Eisman]

We do.

[Michael Batnick]

So what are your handles? Let's tell people where they could follow you.

[Steve Eisman]

I think it's herealizement Playbook.

[Michael Batnick]

Oh, at the realizement Playbook. Okay.

[Steve Eisman]

I think so.

[Michael Batnick]

All right. Are you tweeting or A little bit. A little here and there. Okay.

[Steve Eisman]

Ladies and gentlemen, I'm trying to build that.

[Michael Batnick]

Steve Iseman, great job this week. John Duncan, Nicole, Rob Chart, Kid Matt, Sean, Daniel Travis, everybody who contributes to the channel, we appreciate you, the audience. Please leave us a rating and review and we'll talk to you soon. Thank you. Good night. Now we can warm up. We're just gonna break and then we're.