Hi, this is Steve Eisman and welcome to another episode of The Real Eisman Playbook. So, the podcasting world is kind of an interesting world and we started April of last year and not that long afterwards, I wanted a bunch of different podcasts to try and drum up some publicity for my podcast hoping that maybe that would help. I mean, what did I know? And I came across a podcast named Lemonade. I knew nothing. Apparently, this is one of the more successful podcasts out there. What did I know? And we reached out to them and they were kind enough to invite me onto their podcast. So, I flew out to LA, went to their studio. Funny story, when you go into Lemonade studio, their entire studio was surrounded by cans of lemonade. And so, what did I do? I took a can of lemonade and I drank it. At which point they told me, you're the first one to do that. First and only.
So, so today I'm returning the favor. I've invited them onto my podcast. So, welcome Aidan McCake and Brandon Ewing.
Pleasure. Pleasure. Super happy to be here. Thank you for having us.
So, before we, as I joke with almost all my guests, not that there's anything going on...
But, tell tell my audience a little bit about your podcast and who your audience is.
Sure, yeah. We're a younger audience, I think. It's called Lemonade Stand. And what we're trying to do is there's something in the news every single day and it can... Yeah, it turns out... and it can get overwhelming or it can get depressing or it can get difficult to keep up with that and know what's going on. We try to make it understandable and entertaining to this audience to keep them informed on the news. That's That's our goal.
So, is it politics and business or just business or just...
Tech. Okay. So, let's let let's talk a little bit about things that concern your audience and we'll have a nice little dialogue.
Okay, absolutely. So, what would you say is like topic numero uno for your audience these days?
That is a tough one. Tough question. I don't I don't I would bet you that flips every other day.
But give me a give me a topic numero uno.
I can give you one. If you... Yeah, you... Unless you have one you want to go for.
I mean, I think the undercurrent, especially having I'm I'm 29. So, I have a lot of friends that are still in their early 20s. And I think the undercurrent of every problem they have is it's really hard to even imagine what your financial future will look like. So, when you're coming out of college, your prospects for walking into an entry-level position are pretty low right now. Uh you know, you...
They really are. That's what you hear from all of most many of your people.
Certainly for like white collar like white collar entry-level is is feels like an impossible ladder to get on right now.
For the for the jobs they wanted. For the...
Like I know people say they came out of college with like a a relatively general degree or even something specialized like maybe they did computer engineering. Like they're going to be a software engineer. It's been really challenging to get those roles right now. Any administrative or like office role, regardless of the field, it seems pretty challenging. I would say most of my friends in that 23 to 28 range, they if they don't have a job, they will have submitted hundreds...
...of them has passed the thousand threshold of job applications.
And they will be out of a job for six months to maybe over a year. I would say usually by that point they find something, but it takes a really long time to just land a basic job.
And what are they finding?
I... I feel like they... the problem is they take what they can get. So, they have like maybe a specific vision of what they wanted to do coming out of college. Maybe something somebody has, I want to work even as an assistant at like an environmental law firm or something like that. They have a l- I don't want to say lofty expectation, but a more definitive direction of where they wanted to go. But when you start rounding the 500 mark on your job applications, you're kind of taking anything that will hire you.
As opposed to a typewriter.
The only thing I can think of is ultimately like they're not I mean they're not landing at like a a farm or in some sort of like specialized trade job or or something like that. I would say ultimately they're trying to stick it out in sort of like a white collar world. But they they lose the dreams and end up taking whatever works.
Okay. And what And And give me your perspective.
No, so the thing I hear from my audience a lot and it's it's related to that. It's about financial future. It's It's really often about housing. Housing. Right now there's this big question mark that has been for the past few years over whether or not they'll ever be able to own a home. Whether it's even in the cards for them. And they look at the cost of housing in their area and it just feels like no matter what you're saving, it's not on a feasible path or it's it's you'd have to take on so much debt. You know, with the rates being what they are now and the prices being what they are now, it just does not seem like they can buy. That So people often ask can I buy? Is it a good time to buy? And...
So So by the way, I gave a speech at um It was in Toronto a couple weeks ago and um I was like 500 people. I was talking about AI and I was talking about the financial crisis, the typical stuff.
And And then it was like question period and and and someone raised their hand and said, "Is this a good time to buy a house?" And I said, "No." And then I said, "Do you want me to elaborate?" And then I did. But I I actually think and my wife Valerie and I have thought this for a long time that um the day This is what people haven't don't appreciate. Leaving Leaving aside whether you can afford it. Sure. Which is I actually think that in most parts of the country the days of what Americans used to do, which is you got married, you had a kid, you bought a house, you're 32.
You live in that house for years and so maybe haven't maybe 10 years or so until you have maybe another kid or another kid and then you the house has appreciate in value significantly and then you're able to buy another house.
I think the days of buying a house under the assumption that that will be a creator of wealth are done for a very long time. In fact, I think the the probably the next move in housing prices nationally is down.
Oh, yeah. Doesn't it seem like that?
It's so unaffordable. And it's And you know, the crazy thing is, you know, just adding to what what your viewers have been saying. It's unaffordable not just because rates are higher. That's easy. Because if the only issue was rates are higher, we could all say, "Okay, we'll just wait. Rates will come down one day and then we'll buy a house." The problem is property and casualty insurance has gone up a lot.
Your utility bill has gone up a lot. Your property taxes have gone up a lot. So leaving aside even the mortgage price, it's probably 50% more expensive today to buy a house than it was 5 years ago.
And so why would you buy a house? You you got to be out of your mind.
Forget about it. You can't even afford it. You're probably going to lose money.
Yeah. But there's this expectation. There's this...
Because we because we've lived this way for decades upon decades and so their parents and their parents did.
And it's kind of tough to hear that this string of green lights on housing that has been for generations is not going to be there for you. That you can't buy in and get that appreciative wealth and then...
What are So what do you say to viewers about this?
Then I say what you say. I say I don't think so. That's how it is.
Let's move on.
Don't you always say let's can we move on to the next question? Yeah, next question, please.
Well, we joke on the show a lot about you know, talking about some monumental problem and then being like, oh yeah, we'll we'll figure this out and solve this in 90 minutes.
But what I think...
So on that point, so I had a podcast with with um a woman who does a does a podcast about like corporate She calls it I think corporate gossip, but it's basically about bad things about corporations. Okay. And so we had this whole wonderful conversation about all the terrible things about various people have done in corporations. And she And she was like like sincere. Like she really wanted me to help help her. And And she said, "So Steve, is is there something we can do about this?" And I And I And I said I said, "No." That's the end of the podcast. I mean, it would be funny to have the eureka moment where in one sentence you solve...
Well, I I'm curious when you you think about these problems. Like you look at something like the like the housing market and like what it would need to do for it to realistically become affordable. Yeah, yeah, what what direction would you ask for it to move in?
So my my answer is going to sort of amuse you. Okay. And this is like bad humor. Um...
So the issue currently, as you know, is that in 2021, rates collapsed. Everybody Everybody refinanced into a three three and a half percent mortgage.
And that's who's sitting in the home. The person who's buying the home is getting a seven to seven percent mortgage. And And one thing I learned in in grammar school is that seven is a lot more than three. And that's And so the housing market is locked.
Yeah. So And there's no way...
To unlock it. Well, except Yeah. A lot of the housing stock is owned by older people who are going to die.
And you know, basically it's the baby the older older older segment of the baby boom, which is a very very big segment. So probably over the next 10 years a lot of houses will come for sale and they'll sell at whatever price because the people who are living in the house will be dead.
And their descendants will sell it and they'll just sell it for whatever they can get they got to pay the they got to pay the estate taxes. That takes time.
You don't think there's anything else other than death that could force them to sell. Cuz right now people are...
Unemployment. But they have jobs. The problem is that that is I mean what you were saying earlier is about entry-level people having a tough time getting jobs. But the the overall employment situation is that people have jobs.
The unemployment rate is very very low.
So as long as you know, put it this way, if you're sitting in a house and you have a job...
...and you have a 3% mortgage and somebody offers you a price that's 30% lower than what you paid, you're not selling because you have a job. You don't have to. So unless there's a massive recession, which I don't which I certainly is possible, but I don't see it anytime soon. The only thing that's going to change is that people are going to die.
So what do you think about the the cost of housing has been rising for a while and it rose a lot through an era of low interest rates as well.
So when I think about cost of housing, I think about you know, changing zoning laws, building up...
...particularly high demand but have a low supply.
When I look at Los Angeles, even versus a place like New York, but especially against international cities, right? Los Angeles is so flat for a city of like the metro area is like 12 million people, right? And if you allowed people to build apartment buildings up...
Well, maybe you'd be accommodating a lot more people.
The problem is that that is a local problem.
That problem that you just described about Los Angeles, variations of that are in every major locality in the United States of America.
Could I could I posture you this? So, relative to other major cities, one place that has managed to stay relatively affordable, I use that word very intentionally, is Tokyo. And Tokyo at in Japan, their zoning laws are dictated at the national level. Instead of allowing like a city or a city council to who is obviously has a vested interest in no more building happening in their neighborhood. And by dictating it at a national level, they kind of bypass and ignore a lot of that local pressure to not change zoning, to not allow more housing to be built. Do you think it's reasonable for like the state level or the federal level in the US to introduce some sort of change there? I'm I These are the Yeah.
A page out of the movie...
Zero probability of it happening.
I I I mean, I think it would be wonderful if it did.
But the probability of it happening is zero.
Okay, that's fair. That's fair.
There's two things you said that are kind of at odds that I want to like drill in on a little bit.
Cuz you said that insurance is rising, property taxes are rising.
So, these are the things that could force someone to sell. And these are right, you're saying there's no reason they would have to sell. But if if they can't afford insurance, if they can't afford the property taxes, if those are rising, I think in some locales you are seeing like small price cuts or or bigger pri- People are are like...
Prices are going to come down because of this.
Yeah, which means they're motivated in some way.
Right, but it's it's so slow.
You just think it's not Okay.
Glacial. It's just glacial. It really is. Wait, I had on a um a guest a couple weeks ago. I haven't released it yet. She's like a real housing expert. Like I was like, "Wow, you're negative." You know, like like she thinks housing prices are going to go down 30 to 50%.
Her name is Melody Wright.
I've I've interviewed her a dozen times. I love Melody Wright.
Oh, Melody Oh, you Yeah, she's very negative.
I was thinking to myself, I thought I was negative.
I walk away from her and yeah, she makes me look...
Like I'm famous for being negative, and she makes me look like the biggest bull in the world.
When you said she and negative, I was like, "That's Melody."
I don't know if housing prices are going to go down that much, but they could go down. They could go down.
All right, let's go to a different topic.
Yeah, yeah, yeah, yeah, yeah.
Well, that's that was topic numero uno, baby.
Give me a numero Give me another numero uno.
Another numero uno? Usually with Dallas would be the next one.
Um what else do you want to talk about?
Maybe like law jobs security.
AI or the mar you know...
I mean, we we talk about AI like like it's water every week. There's not a week that goes by where...
When you can't talk about the markets without AI.
Right. I mean, it's impossible. It's all Exactly right. The entire market is AI. But I want to know from you have a kind of a broader audience. Like what are their concerns about What What do they think about AI?
The concerns are everything. This is a it's such a drastic change, and I think it like we mentioned with jobs, it's sort of hitting them first because it feels like companies are freezing or slowing at the entry level cuz they don't know how this is going to shake out.
...replacing expertise yet, but it's...
And it's generally not replacing existing employees.
But it's But you're right. At it's it's means that they're hiring fewer.
It's like this low hire, no fire...
...economy. And so if there's graduating college, it's this disaster. But then additionally, AI allows weird things that didn't exist when we were looking for jobs or I'm sure when you were looking for jobs. You mentioned a typewriter. You can go on LinkedIn right now and use like AI easy apply and apply to a thousand jobs in a in an instant.
Oh, yeah. It's It's all You can You can have it create a million different resumes customized for every job you're doing. And so...
HR departments Yeah.
AI agents in HR departments.
So your So your AI resume is getting reviewed by an AI HR employee.
You're lucky enough, you get an interview with an AI HR person. Like it's like you're talking to an AI and they're interviewing you and it records your data and so it's it's like this through the looking glass environment where they're they're entering so for them I mean some of them are becoming native to it if they're they're adapting to it quicker than you know even we are understanding it but it's changing things so quickly.
They call me old they call me old all the time all the time so...
I'm still young so young. I'm hanging on. I got few months before I turn 30.
So that's what we're seeing we're seeing it just change everything. I mean it's changing um music movies TV everything it's it's just a weird time and I don't think anyone at any age knows exactly how it's going to play out. But certainly you know the thing that most people have if they are stable or have a job they have a 401k and most of it's in S&P 500 and most of that's in AI and they don't know what does that mean what is it's concentrated.
You know it's actually worse than that.
People don't understand it's a dark episode.
Okay I really really put you like under the table.
So like some people I mean used to think if I own the S&P 500...
So here's your problem now okay.
...you know if you would go to let's say let's say you had some money so you went to JP Morgan as your wealth advisor so JP Morgan would would you know take down all your information and spit out the same thing that they spit out to anybody regardless which would be you should let's more or less 60% S&P 500 40% bonds. Right. Now you're really diversified.
Okay here's your problem. It's it's almost it's so crazy it's almost comedic which is 40% of the S&P is tech.
And then if you add up all the companies like Google and Amazon which are technically not in info tech anymore they used to be...
...but they they moved to communication services or consumer discretionary whatever you add up all those types of companies you're at 50% okay then wait then add utilities because they're supplying all the power. That's another 3% for 53. Then add all the investing banks and the alternative asset managers who are lending all the money. Then add all the industrial companies that are building the data centers. And all the industrial companies You you have You get where I'm going. All the industrial companies that supply all the power, and you're at 65% of the S&P. So now So you own an index that's basically AI.
And bonds have been doing so well.
And wait. No, but but the problem with bonds is 15 15% of investment-grade bonds are AI-related, and 50% of all issuances this year is AI-related. So So you have a you So you're living in this fantasy world where you say, "Oh, I got a diversified index, 60%, and I own bonds, okay." And what I tell people is, "If something bad happens, you are not okay." And that's kind of where we are.
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Jensen Huang gets hit by a bus, we're all in the poorhouse. Is that what you're telling me? Is that...
I think that would be easier to survive than OpenAI going bankrupt.
Okay. Yeah.
I think it's so funny you brought that up cuz the I made these notes before I had for questions to ask you. Literally the giant consolidation of the market, are you worried about that?
Well, the answer is yes, I am.
Okay, well, talk about that because so this is where I would love to get your expertise. What I'm seeing lately is they're talking about these neo clouds, right? These these...
...neo clouds. Do you know what those are?
Yeah, it's it's these cloud service companies that buy a bunch of GPUs and they rent them to people that want to do AI.
They're basically making data centers but they're not Amazon or Google.
It's like WeWork for data centers.
It's it's it's CoreWeave and Nebius.
And I see this worrying headline that they're you know, they're credit default swaps which is a which is a word I know from watching The Big Short.
Or another way to put it is CoreWeave when they actually raised debt earlier this year, the interest rate was 9%. But the price of that debt has gone down so much that they the yield currently is 15% right which which means of course that if they had to raise new debt, it would be 15% and I'm okay and you ain't you ain't building no data center with 15% debt. Forget it. It's it just doesn't pencil out anymore.
Did it pencil out before? It probably penciled out.
It wasn't 50 It wasn't 15 before.
At nine does it make sense? That's what that's the question, right? Does it...
I couldn't tell you for sure, but I would it's certainly a lot better than 15. Because again, in grammar school I learned 15 is a lot more than nine.
I really paid attention in grammar school.
No, but so okay, so the next logical step, right? If they can't raise the money is that they go under.
And so I mean you see things like Jensen Huang coming out and kind of like trying to calm the market about CoreWeave and trying to What what happens...
Jensen Huang is going it's all okay. Don't...
...two credit default swaps because like what what what happens next? Doesn't that seem like the next logical step is that these things go under? And then maybe people start looking up the stack at like people that have also borrowed. Well, Meta is free cash flow negative.
Amazon's free cash flow...
...worry about Meta. Meta, you know, Meta can always cut costs.
The guys like CoreWeave and Nebius they don't make money.
They've got massive They've got massive commitments. And they need the debt markets to behave. To function. And if the debt markets don't behave, they don't function. That's all there is to it. If if Google raised some capital, but at least you know, I I don't think anyone's worried that Google's going to go bankrupt. I mean maybe maybe they'll cut costs somewhat and here and there, but you know, it's it's when when the fixed income markets start to get shaky, it's the weak it's the weak hand that that gets hurt.
But you you could be worried I see what you mean with a Meta and a Google because ultimately they have this other business that financially supported them for a long time, right? And an OpenAI or an Anthropic which is bigger than the companies that you're talking about are are in a vulnerable position because they're not they don't have the backstop that these companies do.
You don't have to worry about it. You know why you have to worry about it? Because AI is going to destroy the world. So so we'll all be dead. And so what difference does it make?
Have you been have you read If Anyone Builds It, Everyone Dies?
Yeah. We interviewed the author. Yeah, that was a...
Oh, we did he well, if anyone builds it...
...everyone will die.
No, it's he he Yeah, he basically...
I think he's out of his mind.
Be. Yeah, yeah, definitely.
Be wrong. I think that both authors I think it's two authors, right? They build out the case for the way that the underlying technology arrives at decisions is very difficult to understand even for the engineers working on it. And because of this nature of the process being very vague.
Uh you and and it continually building on itself after a certain point, it will not act against humans intentionally necessarily, but start making decisions that come with the negative externalities that do affect massive portions of humans.
You know what the problem is? Everybody freaking watched Terminator.
And you know what? I'm actually being perfectly I'm actually being perfectly perfectly serious. By the way, I rewatched Terminator 1, Terminator 2. Still good.
Terminator 2 is excellent. Terminator is unbelievable.
But even Terminator 1, which was like a low-budget film, is amazing. But I I literally think...
...part of the problem is Well, let me backtrack for a second.
Growing up, I probably read more science fiction than any human being should have been allowed to read science fiction.
Okay. I mean, I challenge anyone in in terms of the length of the science fiction list.
A nerd. But the point the the Silicon Valley people in Silicon Valley...
...they've read almost as much.
There's one big difference. They take it totally seriously.
They really take it seriously. They think it's like a road map.
They really do. And so my my thesis about this whole insanity is that OpenAI and Anthropic right now are petrified. And they're petrified because they have created a business that produces a product that's very expensive.
And the Chinese open weight models are literally 1/10 the price.
And so they are literally petrified that they're going to lose massive market share and have to cut costs.
So what they've done is that what they're trying to do is manufacture a crisis. And the crisis is if you don't regulate us, planet Earth will end. So you better regulate us. Then when they'll regulate them, they'll figure out a way to get the regulators to throw all the Chinese open weight models out of the country.
That's what this is all about. Nothing more. Nothing more than that.
What makes you I I don't I don't doubt you when you say that. I feel like that is a very realistic uh evaluation of the situation. Why are you so confident about it? Because LLMs don't think. They're were They're This whole thing that LLMs are very close to artificial general intelligence, I think it's just wrong. Now maybe one day we'll we'll get there and we'll have to worry about Terminator, Skynet.
We'll be But I when we're all on Arrakis mining the spice...
...we'll look back on this conversation.
Right. It's the moment the turning point. It's the turning point. Turning point, exactly. So I I I just think it's nonsense. I just think it's utter nonsense.
I mean we can't know. I guess none of us know. We're not LLMs.
But but you know what you know what the thing is? I I said this on a podcast earlier. If I was running one of these companies and I seriously thought that I mean think about this the sentence I'm about to say.
That the product that I'm spending hundreds of billions of dollars to create...
...is going to destroy planet Earth.
My next sentence would not be, "Oh, by the way, how much of an IPO allocation would you like?"
