Hi, this is Steve Eisman and welcome to another episode of The Real Eisman Playbook. I'm really pleased to say I have a recurring guest, an old friend, former partner from my Big Short days at FrontPoint, and who is now also a podcaster, Danny Moses, who runs a podcast called On the Tape. Danny, welcome back.
Great to be here, Steve. You're now lapping me in the podcast arena, just so you know. You went from zero to 60. I'm still stuck at 20, but thank you for asking.
Thank you. So, you run a podcast called On the Tape. Tell us a little bit about some of your guests, things that have been happening on your podcast that are of interest.
Yeah, so I have guests from various fields. Some are technicians, some are strategists. We just had RP from Ergo, who does geopolitical consulting, whose clients are sovereign wealth funds, hedge funds, governments, corporations. Really, really enlightening. And part of the offering for On the Tape now also includes our Substack, What Do We Do, and Contrarians at the Gate, and just this week...
...which you work on with Porter Collins and Vincent Daniel, who you obviously know very well. You had them on a couple weeks ago. So now it's kind of all blended together and Clear Street is now sponsoring.
Who's Clear Street? They're a broker-dealer on Wall Street that's kind of grown over the last few years and their service offering is really catering to every type of investor.
And they do lending, they're clearing everything. And so we're excited to partner with them. We're going to be doing events with them. But I bring that up because it's now kind of all coming together. What started out as just On the Tape that I started with, you know, the guys at CNBC, Dan Nathan and Guy Adami, and you've been on the show as one. Then they have three or four other properties now. This has now become part of this unit. So it's been great. And, you know, writing, which I know you like to do, it's a great expression. We do a Friday night dirty podcast, kind of like your weekly rap. We have it called the Friday Night Dirty. We just sum up the week and kind of what's out there. And so it's been a lot of fun kind of growing both sides. Yeah.
So let's start with your show. So you interview people like I interview people. Tell us a couple, a few guests in the last, let's say, two months that you thought were particularly interesting. What did they say and what did you learn?
So actually the podcast that just came out this week was with Ergo, which is a political think tank type of geopolitics consulting company. And RP, who went to college with Porter Collins at Brown, runs it and gave us his thoughts on everything going on from geopolitics to midterm elections. He wrote a book in 2017 about Cassandra and how they're not just Chicken Littles and what to look for. And some of the stuff that came up, you know, that was really interesting was Fukushima has led to a power shortage in Europe because they went anti-nuclear, things like that.
What was Fukushima? And let's go.
Yeah, that was a nuclear facility in Japan that burnt because of the tsunami that occurred. And the point being, the reaction to Fukushima around the world by not wanting to build nuclear and that stuff has created potentially the stuff we're in today, up to and including AI power issues that we're now, as you know, you've talked about this at length, how are we going to meet this demand, right? A lot of it's nuclear. I mean, and so it's amazing how...
...we might, which we might have had, what you're saying is if but for Fukushima...
Correct. So it's just how those things... And so that was really interesting. Dennis de Busschere was on recently, the son of the great Dave DeBusschere, who runs 22V Research, where...
Yeah, I know who Dave DeBusschere is, and you know who Dave DeBusschere is. Well, tell the audience who was Dave.
He was, until recently, one of the last remaining, obviously was part of a team that won the NBA championship with the Knicks in the...
...70s. He was the... he was the power forward.
Yeah, he was amazing. And 22 was his number. So Dennis de Busschere, who we know from ISI days and everywhere he's been, he's a strategist and an economist. He started a firm called 22V, and, you know, a lot of the people that work with him, including Bill Hembree, your former bank analyst, Bill is there. You got to get him on running bank research.
Oh my god. I got to get Bill on. Okay.
So Dennis was there, and, you know, Dennis was saying he thought the market was going to hit 6,800 or 7,800 this year on the S&P. That's what he said last time he was on, and he was right. Thinks the Fed wasn't going to cut rates. This is even in the face of rising inflation. I thought they wouldn't cut rates... sorry, decided they wouldn't raise rates any longer for the rest of the year.
And he was wrong about that.
No, but recently he came on and said no. So the September chance, or the sorry, the October chance, which has now dropped... Anyway, so that's been great. So it's been, you know, it's a nice mix of people that come on, and some come back on every quarter or so. Luke Gromen, who you need to have on, who's a macro guy, really amazing forest for the trees, he's been long gold for years. And brilliant guy. And thinks away. You know, I like to get people on that don't think like everyone else does, right? And this is so kind of...
All right. So let's talk about... let's start with the Fed. And let's talk about Bessent. Like, I can't figure out what Bessent's trying to accomplish.
We're going to go to both. We'll do both. Okay. Give me your thoughts because I got thoughts. You got thoughts. We'll start with yours. Fed raised rates. Do you think they're going to raise more? More importantly, Bessent pulled this whole twisty twist thing where he issued short-term bonds to buy long-term bonds to try and drive down long-term rates, which only caused long-term rates to go higher. Just give me your thoughts about this whole stuff that's going on in that part of the world.
You know, it's amazing. Nobody's bigger than the market itself. Doesn't matter if it's the Fed trying to control the short end or if Treasury trying to control the long end. It's too big of a market. You and I both know if everyone knows your position and what you're going to be doing, your hand is out. So as far as betting against the house, we wrote a piece on our Substack, you know, counting cards basically. You could count cards right now and figure out what the dealer has, Treasury, what they're... what they're doing. They've told you, but it's too small and it's ineffective. It's more symbolic in nature. So that's the part to deal with Bessent and the Treasury. As far as the Fed goes, if you're truly an inflation hawk, you would want the Fed to raise rates short-term to control the longer end of the curve, right? Because that's what is supposed to happen in our economics class, right? It's supposed to happen. So I don't envy either of their positions that they're in right now. Obviously, the higher oil, at some point hopefully there's peace of some kind in the Middle East and oil comes down, and then the assumption will be that inflation will come down. But we've moved the goalposts from that 2% number to the 3. As long as it's going towards 2, we're okay. But the cost of living is going up higher than... you know, faster than wages. And it's going to be... we're in a cycle now. This feels like a much more secular than cyclical cycle as far as where rates... because rates were so suppressed for so long. And so you and I lived through, held hands at some points, and...
Literally holding hands in 2008. And when you think about 2008, oh, what did we do? We never solved the underlying problem. We transferred the debt to the government balance sheet. I know you've talked about this before. And rates were, you know, we went to zero on rates. And the Fed's balance sheet went from, you know, from zero to 9 trillion in a straight line through COVID, obviously some things that came, and now it's sitting at 6.7 trillion. And the debt on our balance sheet in the US went from 8 trillion to where it sits here to over 40 trillion.
And so rates higher, debt higher.
Quite an impressive move, by the way, to go from 8 trillion. Amazing. Can you imagine being an accomplishment? Yes. But how do you go along that?
I wish I knew. Exactly. So when you think about nominal growth and real growth in the economy, it's been fiscal and monetary stimulus that has been really what's been driving everything to a degree. And so back to your original question, when you start to do things or you're forced to do things that are supposed to kind of rein that in a little bit, whether it's debt, you know, whatever it might be, whether it's inflation, get things under control, no party wants to deal with this. There's no... it's no one wants to stomach it. And so again, I don't envy the position, but I think the course is set. And I don't think anything that they do right now will have any impact. Raising a quarter point here, stopping cutting a quarter point here, buying 20 billion worth of 10... it's an ant. I agree that the level of underlying rates is going to be higher longer. The fact that 500 billion of AI issuance is taking place this year...
...is crowding out. And the statement that something in the private sector is so large that it would actually crowd out Treasuries has never happened before, but it's that big. So I mean, one thing that I would be very nervous about right now is just the whole housing sector because I mean, I think, you know, as of now, mortgage rates are 7.5%. People are not buying homes at mortgage rates of 7.5%. They're just not. So it's a big negative.
I think there's a demographic shift that has occurred since COVID. This generation, our kids' age, whether they buy a home or not, there's just different... they don't think of it like we used to. You know, I was giving a speech yesterday and somebody way in the back, young person, raised their hand and asked, 'Is it a good idea to buy a house?'
And I said nicely, I said, 'Listen, if you find a house that you really like and you can afford it and you can afford the payments, include all the other payments like the taxes and stuff, God bless, buy the house. But don't expect to make money buying the house. I think those days are completely over.'
Did you ever tell the story that from in 2008, so during the crisis that was going on, we all went down to Orlando, not the Vegas trip, the Orlando trip, the second year, it was an ASF, it was a fixed income conference, and you gave a speech and you said you were going to pass out Prozac before you spoke.
And I think you made a comment of something to turn to your left, turn to your right. One of those people won't have a job. A job, right? So again, kind of along those lines of what part of the cycle, you know, are we in here? There's actually more household wealth in the stock market right now than there is in people's homes.
So what's interesting is that you shifted the risk. The stock market going down poses more of a risk to the economy right now.
Than housing. That is very interesting.
Yeah. And then the K-shaped economy, obviously you can see the high end of the K, the housing. Who cares what rates are? People are buying for cash or whatever it might be. But underneath, there's not a lot of transactions going on.
At the bottom part of the K, people are not buying.
It's bad. It's not easy. But the top part of the K continues to carry the economy. It's amazing the spending that still goes on.
All right. So let's turn to AI. We could probably talk about this for the next three hours. Let's see if we can narrow it down to 20 minutes. Just random thoughts. Give me some random thoughts about what you're thinking about.
So I mean, you and I'm sure you've had tons of guests on to talk about it.
Absolutely. So we weave all that in.
So obviously not a tech person, right? Don't me. Right.
But you know what? You don't have to be a tech person to understand what's going on.
Correct. So a couple comparisons, and then every cycle is very unique. So this secular trade is massive. It is a secular change, right? That I thought would by now have become more cyclical. What do I mean? Nvidia's gross margin staying up in the high 70s. If you told me two years ago that we would still be in the high 70s, I'm like, there's no chance. There's no chance.
At some point competition comes, right?
The memory shifts. I know what's going to happen. I don't know when, but Micron, great. Good for them. There's a reason the stocks trade at 8 to 9 times earnings because people don't care what earnings multiple trades at today. It's like, what does it look like? How is this a commodity? Is this going to be a commoditized product? And the answer is yes at some point because all you got to do is build a fab and start making these chips at some point. What really bothers me and the comparisons that I see, it's a little bit of 1999-2000 and a little bit of what we lived through GFC. What are the comparisons? 99-2000, the fiber optic craze, you and I were working together, you know, at the time.
Everybody knows Danny and I were at Oppenheimer. I was the financial services analyst. Danny was one of the more senior salespeople, and Danny used to take me on the road, correct, go see clients.
I could tell that story, that would be a seven-hour podcast, taking you to Alabama to an Embassy Suites with no hot water and you coming downstairs. That was quite something. But let me tell a story now that you bring it up so people that know. So I started there in 1996, right? You were one of the first analysts I met. Meredith Whitney was working for you. Vincent Daniel was working for you. And your first call on subprime auto and home equity lending. I'm a salesperson sitting there covering accounts. I cover hedge funds, state pension funds. And you got up on this podium and said, 'The following eight stocks are going to zero.' And I turned to the guy I was kind of learning from, Barry Karatnik, and I said, 'Barry, how do I make that call exactly?' He goes, 'You don't make that call.' I said, 'I don't make that call.' He goes, 'You can't call a portfolio manager and say the stock you own is going to zero. You get him over here, you talk a little bit, whatever.' So I grabbed Meredith, I grabbed Vinnie, I grabbed you. I'm like, 'What is this Moody's trust securitization data?' And why should... anyway, I wanted to tell that story because that... anyway, so 99-2000, Henry Blodget, Jim Jung Jan, we're living in this very similar...
Henry Blodget was an Oppenheimer...
Yes, and Jim Jung Jan, who was one of the...
Jungle Jim, there's a reason his name was Jungle Jim, covering JDS Uniphase and these things, right? And you sit there as a salesperson and you sit there as an analyst covering financials, which you can't really meme, book value, this ROE, this... it's hard to get past the stuff. They can dream the dream. What was the dream? The dream was that fiber optics were changing the world, that the internet was growing so fast.
They were right. But if you actually stop to do the math, which is what I'm going to get to in a second, on the amount of capex that was being spent, the amount of fiber that was being laid, the amount of fiber that was being leased, the amount of equipment that was being leased by Lucent and Nortel, how Lucent and Nortel were basically, you know, providing loans to people to buy their equipment to do this stuff, the math didn't work. You could have wrapped that fiber around the globe 10 times. So stop and do the math back to where all this capex is on AI. And again, it's a real story. I'm not saying that it's not, but so was the internet, and there were winners and there were losers in that trade. And trying to identify the secular and the cyclicality of various names within the AI play. For example, I love Alphabet, Amazon, Meta, and Microsoft on pullbacks. Why? Because they have an incredible business. Yes, their capex in some cases has now gone negative for the first time. They can turn...
...and their cash flow has gone...
The cash flow, sorry, cash flow has gone. They can turn off that spigot whenever they see fit. They said, 'We're done. We're done. It's enough.' So where is the mismatch between the capacity that we're building, the time that it's going to take, the demand, and the economics of the products which are being created? I have no idea if OpenAI is going to make it or not. I know we've had people on the show talk about it. Anthropic, these guys are burning cash like crazy.
At some point, you're going to need to show...
...you can make money, a profit. I don't know where the math... show me the math, both on the enterprise demand side and the consumer demand side with token and all. Again, I won't pretend to know all of it, but common sense tells you that if you were to stop and do the math on all the loans, the amount of debt that's gone out there, what the prices are that people are charging, over time, the price... you're going to create more chips.
GPU pricing is going to come down.
You're going to have the next generation, the next generation. China's coming, open source, this, that, and the other. So to me, it's not something I want to short, or there's a few names out there that aren't as financially sound as some of the others.
CoreWeave, which I think is vulnerable. It's really like a WeWork of kind of the trade. Yes, they're buying chips, right? They have big clients. And now they've gone to kind of renting out shorter term. So they have a mismatch potentially on their balance sheet. They have 51 billion in debt, which includes leases, obviously, on...
