Steve Eisman from The Big Short | Ep. 031 Lemonade Stand 🍋

Aiden, what do you think the chances are that I don't make too many big short references this episode?

Zero!

Zero, Aiden.

Zero.

Steve Eisman, welcome to the pod.

Thank you.

Welcome to the lemonade stand.

So happy to have you.

Steve Eisenman.

I'm glad you went to the high five.

I was in sync.

Wow.

The real life Mark Baum from the big short is here.

He runs his own YouTube channel.

covering investment

called

the Real Eisman playbook the real eisman playbook which you need to follow uh to stay ahead of this environment and he's here on our show welcome to lemonade stand very happy to be here thanks so much i also would like to just point out that you walked into the studio asked what these are then immediately just cracked one open drank it i like soda oh yeah i've you were you were bolder than me i haven't even drank one i have no idea what they are this is my first so they're pretty good

i believe this is actually lemon so cheers cheers

I also like that he has better mic discipline than me after doing this.

Yes.

You've been doing it for like five years.

This is crazy.

This is too long.

Well, so Steve, there's a lot we want to chat with you about.

Love to get your expertise and thoughts on the current state of the market, on how people are thinking about investments, on just all the craziness that's going on, as well as hearing, of course, the story of the 2008 financial crisis and how impactful you were in that.

And then this experience around having a book, The Big Short, and then the movie written about, I would argue, you in many ways.

Like you're sort of the core thematic tie through a lot of it.

So to start this off, movie, you're in a movie.

We're really curious.

So there are many, many iconic experiences in the big short, one of which was you at the securitization conference, basically in the context of cumulative losses, holding up a zero during a conference, shouting over the guy talking and being

in my absolutely most obnoxious.

So

so bad.

So I'll set you this.

So in the movie, the way it's described, it's like a big meeting of everybody.

And that's actually not what happened.

There were a few meetings like that, none of which we attended.

What we wanted to do was like meet as many people and companies as possible to find out what the hell's going on.

So one of the meetings that I went to was a meeting with a subprime mortgage company called Option One.

And Option One back then was owned by H ⁇ R Block, was a fully owned division of H ⁇ R Block.

So we go to this meeting.

It's me, and Danny Moses is sitting to my left.

And the guy starts pontificating about how great subprime mortgages are and how low the losses are going to be.

And I just lost my shit.

I will honestly say

I was borderline insane back then because I was so angry about what was actually happening.

So when he starts talking about how cumulative

historically, subprime mortgage securitization pools would have cumulative losses over the entire lifespan of the pool of, let's say, 7%.

So he says we think our losses will only be up 5% to 7%.

At which point, I literally lost my mind and I did the zero thing.

And so, what happened was, as I do, he wasn't even asking questions.

I just interrupted him.

There were 150 people in the room.

And, like I said, I was borderline insane.

So, I hold up my hand.

Danny literally almost crawls under the chair.

And then literally, as I go zero,

my phone rings.

And it was my wife.

And I always answer my wife's phone.

So I literally got up and I walked out and started talking to my wife.

And that's what happened.

Literally what happened.

That's funny.

So you made a video recently going over some of the scenes from the movie.

And at the end of it, you say that you used to say,

what's the, what was wrong about the movie?

You used to say, well, it made me too angry.

I'm not that angry.

And I was.

But then

when the movie came out, you know, people would always ask me, what do you think about the portrayal of Steve Carrell?

And first, I would say, I only met the guy once.

We met for breakfast at this diner near my home.

And then I took him to see my family.

And I met him one or two more times afterwards, but I literally only had that a really like an extended one-hour conversation with him.

Then the movie comes out, and everybody says to me, What do you think about the portrayal?

And I say the same thing to everybody, which is, first of all, I think it was a great movie.

I thought

I was very thankful in the way he portrayed me in the sense that the distance between portraying me as a good guy and an asshole is a very short life.

Sure.

Very small.

And we were petrified that my wife and I, I would be portrayed not as a good guy.

So I was very thankful for that.

But I said,

I don't think I was quite that angry.

And that was, the movie came out, let's say, January 2015.

So in 2010, when President Obama had created this Financial Crisis Commission, the Financial Crisis Commission came and interviewed me for like two hours.

And I'm in the book, the Financial Crisis Book, but I never heard from him again.

And then in April of 2015, it's only a few months after the movie came out, the Crisis Commission did a data dump.

They literally put out every single piece of paper that they had.

And one of the pieces of paper that they put out was a transcript of my interview, which I hadn't thought about in five years.

So if anybody wants to look look at it, you just type in Steve Eisman, Financial Crisis Commission, and it'll pop up.

I did do this after I saw your thing.

I can't think of the exact quotes off the top of my head, but it was you saying, like, these guys are all schmucks.

You were saying that all the financial data is gobbledygook.

Like, they pull it from Europe and it's 2x in America and it doesn't make any sense.

And yeah, it was just you just laying into everyone involved in the process.

I was insane.

And after I read it and I said, no, Corell was right.

I was angry.

I'm reading this.

I'm like, this could be from the script.

This sounds like Aleph Corell portrayed it.

I kind of hung on to that same part of the interview.

I was thinking about that a lot after.

And I think a big theme of the movie is your anger or your disgust with the system that has been developed and the lies that people seem to be telling themselves in order to keep it going.

And I was wondering if...

any of that do you feel like that anger or that frustration with the system has dissipated over time like have significant changes that helped produce the crisis at the time

been made?

Massive, absolutely massive.

People don't appreciate how much has changed.

What are some of the things?

I'm going to teach you.

Yeah, yeah.

I'd like to take something maybe, maybe hopefully.

A positive.

Yeah, because I think as we look down the tunnel of where we're at right now, I think a lot of people are pretty pessimistic.

And I want to look back at that crisis and see like what action was taken in the wake of that that you actually think is valuable.

So

Dodd-Frank got passed at the end of 2010.

And as part of Dodd-Frank,

a new position was created in the Fed called Vice Chair of Financial Supervision, which is a fancy word for chief bank regulator of the United States.

Think about this for a minute.

Prior to that, there was no chief bank regulator of the United States.

It was like an alphabet soup of regulators.

They got played off one another.

And so that changed.

And

President Obama never actually appointed anyone officially to the position.

So as I like to joke, joke, one day as Powell was going to the bathroom with

Fed governor Daniel Tarullo, he turns to Dan and says, why don't you do it?

And Dan says,

okay.

Unless you think that it's funny,

I told that joke to Daniel Tarullo years later, and his response was,

That's basically how it happened, except for the bathroom part.

So Daniel Tarullo becomes effectively vice chair of financial supervision.

And

he should be like, he's like, there's like, there's a hall of fame of bank, of great bank regulators.

Okay.

He's in it.

He's the only one who's in it.

One guy.

He's the best.

He's the Michael.

He's the worst.

And so what he did through

the annual stress test that you read about

is

He made the banks completely delever.

So just to give you an idea of how much.

So prior to the crisis, Citigroup was officially leveraged, if you just did simple math, 33 to 1.

Now, if you add in all the off-balance sheet, gobbledygook that eventually they had to bring back on balance sheet, it was probably 40 to 1.

When he was done, it was 10 to 1.

Now, that's just, you know, numbers to you guys, but I could tell you in my world, that's like the distance from Mercury to Pluto.

So at 10 to 1, you don't have to to worry about citigrou going down and even within that 10 to one he made them cut off the tails of risk so i am very confident in saying the banking system in the united states today is safe can i ask a stupid question i want to make sure you can ask an intelligent question okay so when you say levered 40 to one do you mean 40 outstanding in terms of loans assets

very simple yeah just take the balance sheet

the most simplistic way take the the total assets of the bank and divide it by the common equity That's 40 to 1.

Okay, got it.

That's it.

And then another layman question: 10 to 1 still feels like a lot of leverage.

Oh, it's very,

it's so low.

City group wasn't levered 10 to 1 in your life, in my lifetime.

That's how much lower it became.

So, why is that such a substantial difference from, let's say, 40 or 30 down to 10 to 1 in terms of overall financial stability?

The way I would analyze it is

if you do some math,

okay.

Bank 101.

If you get this formula,

you get banking.

Okay.

Nice.

Okay.

The formula is return on equity equals return on assets times leverage.

So what does a bank do?

It basically sells you access to its balance sheet for a price, which is generally a loan.

So let's take an extreme example.

Let's say a bank has 100 billion in assets.

Most of it are loans.

And it has only 1 billion in equity.

So it's levered 100 to 1.

For bank analysts,

the real determination of how profitable you are is the return on assets, because that's all the money you're lending out.

The leverage is just math, how much equity you have to have against those assets.

So the first question you ask is, what's the return on assets of a bank?

So Citigroup, which is underperformed for years, has a return on assets of less than 1%.

JP Morgan, which is a great bank, has a return on assets of something like 1.5%, 1.6%

of assets.

So

probably 1.7.

So

if you're left at 100 to 1

and

let's keep it very simple.

Let's say your return on assets is 1%,

which would be okay today, but not great.

Okay.

Lower end.

Your return on equity is 100%.

Return on equity equals return on assets times leverage.

Okay.

So the first lesson here is that banks have a built-in incentive to ever increase their leverage because the CEO is basically compensated on return on equity.

Right.

So

the less equity you have

and the more leverage you have, the higher your return on equity.

So here's the crisis in a nutshell.

So if you're leveraging 100 to one, now none of these banks will leverage 100 to one, but they will leverage 40 to 1.

Let's keep it 100 to one.

The two big differences in terms of banks, business model is that the model only works with leverage and the cost of goods sold, which is losses, is unknown to point of sale.

Meaning when you make a whole bunch of loans to people, You're just guessing what the losses are going to be.

We only know one thing.

You're going to be wrong.

The only question is in which direction.

So if you have a bank that's 100 times levered and has a 1% ROA,

its return on equity is 100%.

But suppose you made a whole bunch of subprime loans.

And now instead of a 1% return on assets, you have a negative 1% return on assets.

Now your return on equity is negative 100%,

meaning you just wiped out your equity.

So the lesson is if you're really, really, really, really levered, it doesn't take that much losses to blow you up.

Wipe it all out.

But if you're levered 10, 15 to 1, it takes a lot more losses.

That's the lesson.

You can stomach more non-performing loans.

Of course, because you have more equity.

That makes sense.

And how was that enforced?

So you list that as like a major change of how banks are, let's say, less prone to these crashes that took place.

Oh, so

it was enforced through the annual stress test.

Okay.

So that's a long, complicated story.

Sure, sure, yeah.

But the gist of it basically was that over a couple of years, he basically crammed their leverage down.

Gotcha.

He would, basically what the stress test does is it's like an exam.

And it says, here's an economic scenario.

Your capital is here.

In this scenario, you're going to lose some capital.

You're going to go to here.

You have to be above a certain level under this stress scenario.

So therefore, you have to have more equity than you originally thought you needed.

And he forced all the banks to delever and this is something that's still happening to this day like it's still happening to this day but now because the leverage went down so much they're allowing the leverage to tick up a little bit okay not much a little bit is there any are there any significant changes besides that position coming into place and that type of like check or enforcement or is that the main thing that you consider the the the annual stress test as as people like to say is like the binding constraint on banks that's it.

Because no matter what you do, you have to be able to get through that constraint.

You have to pass that test every year.

It's not optional.

Yeah, but didn't like Silicon Valley Bank.

Oh, you want to bring up a sole topic?

I mean, there's banks that pass that test and then turns out they weren't

in the regulator's defense, and believe me, these people are not in the Hall of Fame.

Silicon Valley, in terms of its side, was below a certain threshold.

I see, so they weren't.

And so some of the tougher tests that applied to Citibank and Bank of America did not apply to support.

So for example,

the big banks have major, not just capital requirements, they also have major liquidity requirements, meaning you have to have a certain enormous amount of money, basically in short-term treasuries.

So those rules didn't apply to Silicon Valley.

It's not like the bigger banks were such geniuses.

Bank of America made a very bad bet too, but they couldn't make as big a bet as Silicon Valley because they had to have much more short-term liquidity.

Right.

They had rules that were more.

Okay.

That makes that makes total sense.

Wait, do you have any more questions about actually 2008?

Yeah.

Yeah, I want to make sure we get those.

Well, I felt like in, you know, not just in the movie, but also in the follow-up explanations that I've seen from yourself, there's sort of a

there's a timeline to your realization of how consequential what you were discovering was going to be.

And I was wondering

at what stage did you realize that this was going to have far-reaching consequences beyond just the U.S.

housing market?

Like,

oh, this is going to be something that collapses the economy of Iceland or,

you know, collapses the economy of Greece.

Like the, it had far, I think a lot of the movie spends time talking about the U.S.

housing market is going to crash, but not that the global financial system is going to collapse.

So there's 07 and and there's 08

so the the subprime sort of story is really an 07 story

it wasn't i mean we sort of knew but we kept finding things that we didn't even know existed like um

i remember

i got a call from a hedge fund guy that i was friendly with and he says to me

you know what a sieve is

So a Civ is a special investment vehicle.

It turned out that was like a big deal.

And I said, I don't know, but I'm going to find out.

And it turned out that

these were these vehicles where banks would put all this crap into, and it would be technically off-balance sheet.

But what we realized was that it was that if their stuff ever went bad, they couldn't allow the investors to eat the loss.

So the banks would take it back on balance sheets.

That's how when I said Citigroup was leveled 33 to 1, but an actuality was level 40 to 1, that's because all this other crap was out there.

So it took a while to really figure out, I mean, it had so many tentacles.

We were discovering new ones all the time.

So you're kind of realizing that this can have

much

farther-reaching consequences than you initially, because you keep finding it.

So I knew the system was basically at risk by the end of 07.

Yeah.

Well,

the intellectual mistake that I made in 08

was that, and this, this is me and all my partners,

if you ask any of my partners, they'd say the same thing.

The mistake that we made as a group was

we walked into wait thinking, this is really bad.

It just is really, I mean, it's frightening.

I can't sleep at night.

Surely the government must know what we know because it's just so bad.

It's so obvious.

It's just so bad.

And

we didn't understand until it was too late.

It was like till the fall that they didn't know.

They really didn't know.

They were that behind.

They were that behind.

There was this wonderful moment in 08 where I I never forget this.

Bernanke and this is like in the late spring where I started to realize like we are fucked,

which is Bernanke made a speech.

And then shortly after, Secretary of the Treasury Paulson made a speech, and they both said the same thing.

I remember sitting in the office and comes across the tape.

They both said the same line.

The subprime crisis is contained.

Yeah.

And I remember turning to Danny Moses and I said, it's contained all right.

It's contained the planet Earth.

That's like, and that's when I ended up like like I was thinking

you must really not understand what's going on because you wouldn't say that if if you really understood it's like the Bush mission accomplished speech in 2013 he's like guys we did it it's over

so okay but when you're listening to Powell now you don't have similar you're not You feel good about this.

This all feels fine.

Everything he's saying about.

You know, the whole thing with Trump and the Fed, that's what you're asking?

No, I'm talking about in general.

He talks about the health of the economy.

He talks about how unemployment rate is relatively low and stable.

I think the economy is okay.

Okay.

I mean, there's a little bit of a dichotomy in that you've got.

Plug my podcast for a second.

Realizement playbook.

On the Real Eisen Playbook on YouTube.

On the Real Eyesman Playbook.

Which is fantastic.

A interview.

It just dropped today.

Okay.

It's an interview with Dan Ives.

But Dan Ives is the like tech analyst at Wedbush.

A more bullish person.

I thought I was bullish.

A more bullish person could not exist.

Okay,

he's in the hall of fame of Lee.

Okay.

I mean, he's all tech.

Yeah.

And you listen to Dan Ives and you're like, you buy everything.

And he's mostly been right.

So in defense of him.

Sure.

But there's another side to the economy, which is, I don't know if you've noticed, but the subprime auto market seems to have imploded.

Oh, we're going to talk about it.

But so

the consumer is okay.

I don't think the consumer is the most healthy it's ever he or she has ever been certainly not um

dying from subprime loans but um

the economy is a bit of a dichotomy i mean i still think you know if

assuming there's no trade war with china we'll be okay okay that's a fair take That is a big assumption I would love to come back to later.

Yeah, yeah, yeah.

Well, okay, back back in a way.

Because I think you might have a similar question, but I wanted to ask this.

This is like a human question of, so 2007, 2006, this period leading up to the crash, you are making these enormous bets against the housing market and you are required to pay premiums every month, and that is expensive.

And I've sort of people around you, like even your own father, you mentioned off-pod is like questioning the choice here.

What was the human element of

being the black sheep in that situation?

Like, how did you handle that?

Unbelievable amount of anxiety.

Yeah.

Tremendous.

I mean, I had,

I wasn't on any medication, but I would say that one thing that I would do, I just had a lot of anxiety.

I mean, it was very nerve-wracking where, you know, people would come to our office and tell us we were crazy.

Yeah.

All the time, right?

I'm sorry.

All the time.

But

I used to, so I had this little office and

I had like a television in my office.

And so almost every day at lunch, I'd go into my office and I'd watch an episode of Deep Space Nine,

which was my favorite Star Trek series.

And that helped, I gotta say.

I really did.

That's pretty healthy compared to like drinking in the office.

It's a great anxiety medication as far as they could go.

It's an SSRI in many ways.

Wait, so are you secretly a nerd?

Are you part of this?

Oh, you have no idea.

No idea.

We had a fourth comb last year.

Yeah.

Anything else from 2008?

I think

that's kind of it from that

section, yeah.

Because I want to jump into something, I want to I want to pitch something to you, Steve.

And it's

I'm going to disagree with you on the state of the economy, and I want to hear your thoughts, okay?

I want to, I want to, I want to pitch you a bigger short.

And my assistant here is going to pull up a little display, okay?

I'm getting nervous.

This is the bigger short.

Okay, this is a Jenga block.

Got it.

Okay.

You smell that?

Smell that?

Opportunity?

No, idiot.

Content.

We're going to make some content.

Okay.

Okay.

Bring out my slides, Perry, if you could.

So this, this is, this is all deposits at U.S.

banks.

Okay.

You'll notice after COVID, with all the stimulus, there's a surge of new money in U.S.

banks that they have to do something with.

Some of them do the quote-unquote safe option, and they put it all into U.S.

treasuries long-term, like Silicon Valley Bank.

That didn't turn out so well.

Didn't turn out so well, they collapsed.

Okay, when people try to withdraw, they can't sell the long-term treasuries.

They don't, they can't, they have a liquidity challenge.

The stock goes to zero, it's a collapse.

They have to be bailed out, or at least bought by someone else.

But other banks decide all this new money is prime for lending.

They have to lend.

Yes.

And they need to lend more than ever.

So they might have to relax their lending standards in things like auto loans, credit card loans, uh,

uh, business loan or home equity loans, HELOCs, and then business loans and CRE, commercial real estate.

Okay, so they're not nice chart you got,

very professional,

very well put together.

Yeah, so they're, they're, they're extending their loans uh above and beyond what they were doing before, yep.

Okay, all true.

Here's what uh, and this this Jenga block tower here represents all of these different loans.

This is uh credit cards and auto and CRE.

This is like the loan book of a major U.S.

bank.

Okay.

And again, this tracks for Wells Fargo, Bank of America, JP Moray, all the big ones.

Okay.

I'm waiting for get to the point.

I'm sure you'll have an answer, but I just want to explain.

So those are non-performing loans.

Non-performing loans.

So around

23Q1, The number of loans that are non-performing, aka people not paying them back in default, starts to to rise.

Starts to rise very, very quickly.

And then right around 24Q2, it levels off.

And people say it's okay.

Okay.

The losses are contained.

They're contained.

Contained.

I heard that.

They're contained.

And this is true.

Again, this chart is the same at all these major banks for all these major classes, credit card, auto.

No question about it.

Okay.

So what I noticed.

Oh, sorry.

Well, actually, you know what?

This data comes from Bill Moreland at Bank Reg Data, and I want to say it's his work, okay?

Why am I on the presentation?

You're in the presentation because these.

Nice sunglasses, by the way.

Why do you have an IKEA shirt?

They don't sell merchandise.

That's me in Taiwan in like 2016.

Oh.

So

as these default rates start to rise, the banks are going to the people that took out these loans.

And they're saying, hey, if you can't pay your $10,000 monthly payment for, let's say, a commercial real estate building, we're going to modify that payment and you can pay six thousand otherwise called extend extend and pretend extend and pretend so they start to be doing this extend and pretend strategy for not only cre but for auto and credit and a lot of things so this is harder to do that for

credit and auto because you have securities it's they're securitized and the securitization documents are restrictive of what you can do i'm 100 sure you're correct and that i don't know

keep going

So, this is for we'll focus on CRE.

PowerPoint, it says that on the graph right there.

So, I don't know, see

this graph is not made up by Doug.

Uh, this is non-performing loans modified.

So, this is how they track that they have done this.

Yeah, basically, all right, and and all true, yeah, okay, so I'm still waiting for the punchline.

So, around the time that you see that number go flat, yeah, is when they are actually modifying loans

to hide the rising default rate.

Yes, they are.

Okay.

So you can see here, they track very closely.

So the default rate should be rising, but instead they are giving people more and more modified loans.

But at least we can track that.

If you're an analyst for a bank and you're looking at their stock, you can see, hey, non-owner-occupied modified is growing.

So at least we know what's going on.

Is you're arguing that CRE is going to sink the economy?

No, but the combination of CRE, credit, auto, and all of these might be bigger than people think.

Okay.

So as delinquency rises, modification also rises.

But then in July 2025, a new rule came out that is making it even harder to track.

Now, this was pressured by the banks on the regulators to...

Wait, wait, wait, wait.

The banks are pressuring regulators?

I never heard of that.

I've never heard of that.

I don't know if this sounds familiar.

This is when you're starting to say, keep going.

Okay.

The institutions now only report loans as modified if for the first 12 months they are paying modified.

So

I have a perfect chart here.

This is them pressing.

Oh, no.

So in other words, if you modify for the next 12 months, you classify it as modify and then it goes back to modifying.

And then it goes back to ⁇ so, for example,

Aiden goes in in January.

He makes his $6,000 lower payment.

He does it in February.

He does it in June.

He does it all around the year.

And then by December, even though he is not back to paying the original $10,000, it is now classified as a performing loan again.

It goes back on the books.

I'm with you.

I got one caveat,

which is

the big loan growth in the United States over the last 10 years has not happened in the banks.

Okay.

It's happened outside the banks.

I agree with you, but some of these entities that are outside of the banks seem to be tied back into the banks.

Well, the banks lend to them.

Yeah.

But they don't make the loans that those guys make.

But if those guys fail and the banks lend to them,

it's a problem.

So here is from 2009.

This is TDR, which I believe is troubled debt restructuring.

This is where, this is basically modified loans.

And if in 2009, if a bank had 0%

modified loans, they failed at basically an 8% rate in 2009.

However, if they had above 5% troubled debt restructuring, if they were doing a lot of loan modifications, they were addicted to it, they failed at nearly a 42%, nearly a half the banks.

That's higher.

Were failing if they did a lot.

If they got addicted to loan modernity, I'm so glad I'm on a show where guys know math.

This is their three-year disruption.

I'm still waiting for the punchline.

We're getting there, okay?

So if banks above 5% troubled debt restructuring failed at nearly half in 2009, and nowadays you look at all the major banks for all of their major loan portfolios, credit, auto, CRE, and they're approaching 8 or 9% TDR.

They're modifying their loans at really high rates.

That's just CRE.

This is just CRE, but I have the, I mean, I'm not, I don't got 14 graphs, but these graphs, I promise you, they track for Wells Fargo, Bank of America, J.V.

Morgan.

Okay.

Okay.

Calm down.

Finally, I'm going to go ahead and get a lot of people.

More people need to tell me that.

More people need to tell me that.

First of all, Steve,

the guys who I talk to,

the bank guys,

believe me, they pour all over.

We pour over all this stuff every quarter.

When these banks report, the amount of disclosure is astonishing.

It's not like it's hidden.

Like, you go through J.P.

Morgan's deck, you know what's going on.

It might take you a couple of hours to go through J.P.

Morgan's deck, but you know what's going on.

I mean, first of all,

they're much better capitalized than they were.

They have much higher reserve levels

than they did.

So I actually don't worry so much about what you're talking about okay what i worry more about is what i don't know which is that most of the loan that

all this is you're you're you're saying are true yeah

if that was coupled with massive loan growth at the same time then we'd i'd really be worried okay because those numbers would actually be understated

meaning

When you

it takes time for losses to show up.

Yeah.

So if the number is like you worried it's 7% Yeah, but let's say you're talking about a bank that's growing its loan book by 20% per year It's really not 7% because the denominator is growing so rapidly So what you would what you would do as a to really understand is you would take the same numerator But you wouldn't divide it by the current size of the loan book You may you might divide it by the size of the loan book a year ago Okay, you follow yeah because that would really tell you because the losses that are happening now are not from the loans that you just made in the last year.

Sure.

But there hasn't been very little loan growth in the banks in 10 years.

I think that's fair.

I guess I'm just...

What I would be, if I were you.

Yeah.

If I could,

I would try and understand

what's been happening in Blackstone and Apollo and all those places.

That's where the big loan growth has been.

And the problem is that they all do it privately, so we don't know.

So the guys that I talk to and really respect who have been covering financial services for as long as I have, that's what we worry about.

We worry about that the big growth is in private equity, private lending, and we don't know what the hell's going on there.

There's no stress that's there.

There's nothing.

It's a black box.

So if tomorrow it blows up, someone's going to say, told you so.

But

the problem, the difference between now versus what I did back then was

securitizations report data every month.

Literally, every single credit statistic in a securitization is reported every single month.

So, when you were looking at subprime loans in 2007, every month in the middle of the month, the data come out and you'd look and say, still bad.

Yeah.

There's nothing like that in the private side.

All you have is anecdotes.

So,

my feeling is the difference between what happened back then versus now

is

because

subprime was so big, it got to be like 500, 600 billion subprime mortgage loans per year.

It was 20% of the housing market.

And the underwriting was so bad.

You got bad, you had losses before the economy got bad.

So you see, the normal cause and effect is you have an economy,

it starts to go into a recession, people start to lose jobs, and then you get bad credit quality.

And then the Fed cuts rates, we go into a recession.

Eventually we come out of it.

What was different about the subprime crisis of 2007 and 2008 was bad credit created the recession as opposed to the recession creating bad credit.

That makes sense.

I don't, as far as I can tell, whatever you're talking about here or whatever is happening in the private world is not going to cause the recession, whenever that recession will be.

What I think will happen is there'll be a recession one day, and then we'll find out who did bad crap.

But it's not going to...

I think that's making an argument that basically all this stuff is going to create a recession.

And I don't think that's true.

I think that's a fair pushback.

But I am just saying that it's, you know, from the outside, it's a little spooky to see that this number is rising, but we will, after, again, second quarter of this year.

That number could be rising still, and we will not know about it because of the way this fairly.

And I understand what you're saying.

i don't think it's going to cause a recession okay now if we have a if we have a trade war with china we're going to have a recession and then all this stuff will unwind yes and but again your example you just mentioned about things unwinding before we even had a recession you know uh tricolor and first brand groups yes tricolor they both are failing after well tricolor might be just a fraud yeah well yeah and a complete fraud but i are they're the only one is it contained to just tricolor or people no i mean you know, you had, I know if you saw CarMax had terrible numbers last week.

Carvana has great numbers somehow every time.

What does Carvana?

Yeah, every time.

Every time somehow.

I don't know.

I don't know how it's done.

But I know a bunch of people who are a lot older today because they were short Carvana.

I've lost a little bit.

I'm stupid.

I don't know.

But CarMax tells you that the consumer's got issues.

Okay.

That's all I'm getting.

Yeah, I agree.

Okay.

I agree.

The consumer has issues.

Maybe stepping away from the idea that this is all heading towards or going to cause a recession, just the mechanics of what he was explaining.

Because when you brought this up the first time, my initial reaction to the pressure on the regulators to

basically relabel the loans after like a year of the reduced payments, but the reduced payments get to continue after the fact.

My first reaction is, why is that allowed?

Why is that okay?

Well, you got to have a rule.

But yeah, I mean, but the rule doesn't make any sense.

The rule isn't doing anything of value anymore if you allow it to like go.

Listen, compared to what used to exist,

that's like nothing.

Yeah, but that doesn't feel like terrible.

I understand what you're saying.

It's not a great rule.

Yeah.

But compared to what I was used to,

it's like a cookie.

But I was watching cartoons in the 20s.

I understand.

This is great, though, hearing that our perspective, we just need to broaden it.

We just need to be up to it.

Like, you're like worried about like this is terrible.

This is terrible.

I'm telling you what used to exist

It's like it's not even the same universe well you mentioned you mentioned a lot of the lending growing in in

private private businesses like or or

private equity right

what is I mean, I hate to

I

hate to be a pessimist about that, but what do you think is kind of the worst version of what you could imagine going on versus uh

the worst i'll give you the worst yeah i'll give you the scenario that that that

someone would argue okay is horrendous i don't know if it is or it isn't yeah so years ago apollo bought an insurance company a life insurance company

and

there are people who argue that what what apollo has done is take a a boring life insurance company that takes its premiums and invests in boring stuff, and they've loaded it up with private equity and other crap.

Yeah.

And that one day

the whole life insurance sector will blow up.

Now, I don't think that's probably true.

Okay.

But that's one version

of what some arguments people make.

And then this,

regardless of the extent of how bad it is, what may or may not be going on behind closed doors, you think all of that comes to light in like whatever crisis unfolds in the future?

Whether there's some sort of recession, there's a recession.

What does Warren Buffett say?

When the tide goes out, you find out who's naked.

He said that, not me.

And it's true.

It always happens like that.

I'm just wondering if there's, it's like a nudist pool.

It just feels like a lot of these things are more naked than they seem.

Well, we'll find out.

We'll find out.

So I want to ask that.

Yeah.

Well, that's fine.

Without a pencil.

Swap into a pencil.

So it seems like your view on at least the loans that Brandon is concerned about is more that might have a lot of consequence after a recession happens rather than being the cause of it.

But that a China trade war might be a certain cause of it.

So I'm curious what you think about that.

We've just been reading multiple books about the relationship with China, obviously following everything going on there.

What is your take on America and China's relationship and the consequences?

I just can't handicap it at all.

Honestly, I mean, on the one hand, what we have over them is they are still incredibly export-driven.

Much, I don't know if you know this, the United States of all developed countries is the least export-driven economy of all.

Our exports as a percentage of GDP is around 10%.

Yeah, that'd be super high, right?

No, that's just, that's, but it's consistent.

And that's the lowest.

That's the lowest of any developed country in the world.

So if you look at Germany, it's 40%.

If you look at most European countries, it's 30%.

Mexico is 30%.

Canada is 30.

China officially is 20, which bullshit because they ship all the stuff to Vietnam that comes to us.

It's probably like 30.

That's why Europe caved.

Because when you're negotiating with someone whose exports is 10% and your exports are 30%,

you know what they call that?

Problem.

So that's why Europe caved.

So

what we have on China is they export a hell of a lot more to us than we export to them.

What they have on us is they got all the rare earth metals.

Right.

And

I just don't know how to handicap it.

I mean, you listen to Secretary Besson and it's like we're on the verge of a deal at any time.

But then I read other things that say China is going to demand that we abandon Taiwan completely.

So I don't know.

I don't know how to, I just can't handicap this one.

Why do you feel like that would be so consequential versus anything else that might disrupt the economy?

Look, I think we could live without a lot of other countries, but we can't live without China.

What about, so my, my thought is- I mean, we could live without China, but we'd have a recession.

Okay.

I mean, yeah, we'd purchase every, yeah, it's they're extricably intertwined.

I think that's a good idea.

Yeah, I mean, as an example, I run a portion, a portion of the business that I run is dependent on clothes and manufacturing that we get from China.

There's a bunch of Chinese factories that we work with to operate that business.

And if we couldn't get the products period from there, we'd have to change everything about it.

Right.

Yeah.

And yeah, the book we just read is about all the process knowledge that has been developed by China over decades and how that just doesn't exist in America.

You can't just like hire the people if you haven't trained that generation of workers over the last two decades.

We've just, we've exported.

Well, they have an entire ecosystem that would take us 10 years to recreate here.

Yeah.

What I don't understand is even if we did throw up trade barriers and tariffs on Chinese goods and did a full-on trade war, I don't understand how they can't just ship it to Vietnam or Indonesia.

Oh, we're not.

We're not idiots.

We track it.

Okay.

Well, honestly.

But by the way,

Trump put 30, 40% tariffs on that.

On those type of products already.

I was going to ask, I feel like that's a point actually that isn't brought up very often when we talk about that or when I hear other people talk about it.

The fact that we track the manipulation

tariffs like that.

Do you know how that happens?

That I don't know.

Like, how are we?

Yeah.

That I don't know.

Well, the U.S.

government does something.

Yeah.

So in the same vein, I'm curious for you as somebody who's incredibly deep in the financial world and presumably everybody in your world is trying to understand how all these tariffs are going to impact everything.

As a layman,

this year has felt incredibly turmutous in terms of tariffs, trade war, just the uncertainty around everything.

Yeah.

You found it.

And that's just how much I'm sure on your end is very

soon.

It's like really kind of boring.

I was hoping this ever would happen.

Now it's hoping for something exciting to finally happen.

It's been smooth on my end.

It was smooth.

So it's, I think, hard for the average person to understand what the hell is going on.

What do people in your world think about what is happening?

I mean, I'm sure it's broad range, but.

I think

you go back to early April when he announced Liberation Day.

People literally freaked out.

They just freaked out.

And I thought a lot about like,

why did they freak out?

I mean, the market was down huge from

the, I think the SP was down like 16 to 18% from where it had been at its peak.

NASDAQ was down like 30 or 25%.

And nothing had happened yet.

He just made a speech.

And so I was thinking to myself, like, why

have people reacted so like

panicked so quickly and came with a theory which i'm going to share with you okay okay

and the theory is

i mean people who are in the market are basically educated people they all went to college at least and they all took econ 101

and

economics is a very very persuasive class when you take it It's got graphs, it's got tables, it's got PowerPoint, it's got mental health, it's got a PowerPoint, It's got people who won the Nobel Prize or wrote your textbook.

And it's just very convincing.

And one of the things that is taught to you in Econ 101 is that tariffs are bad.

And, you know, terms of trade and

what's it called, you know, if you make bread and he makes guns, everybody's richer, that type of thing.

I forget what they called it.

And everybody who went to college took that class and everybody believes it.

And then the president of the United States, the president of the the united states comes out and makes a speech and says i don't agree and everybody says like saying what do you mean you don't agree we all took econ 101 and that that was so jarring to people

that they freaked out they absolutely freaked out and then what happened was as time went on it was like well

where's the bad where's the bad stuff like the companies reported earnings were okay

and so then they started to negotiate and they got some good deals.

And the tariffs will be higher, but the world didn't end.

And things seem to be okay.

That's kind of where we are.

So there's no credence in your mind that there's been a bit of extend and pretend going on, companies delaying raising prices because of tariffs.

There's some of that going on.

There's some of it going on.

Because Powell was talking about.

But look at it this way: if there was no AI revolution and

Meta,

Google,

Amazon,

Oracle now, and blah, blah, blah, are spending $400 billion a year building data centers.

If that didn't exist, we'd have another story.

Okay.

So that is driving a lot of what's going on.

In a good way?

Well,

I think

I would prefer just a one-word answer with no depth here.

Just tech is good, ideally.

Tech is good.

I used to ask Dan Ives.

Yeah.

Oh, that was.

Yes.

Even I, as an AI lover, was a bit like, come on, man.

There's some Kool-Aid going on here.

Well, they are spending the money.

Oh, yeah.

The difference, by the way, the difference between the dot-com bubble versus now

is, and I don't even know if you guys were in diapers in the dot-com bubble.

We want to ask.

But in the dot-com bubble, you had companies nobody ever heard of who had just gone public.

Right.

Some of them had real businesses like Amazon at that point.

Many had no businesses.

They just had like a deck.

And they were spending all this money building out the internet.

internet.

And they spent like lunatics.

And it was too quick, too soon.

And we had a tech recession.

The difference between, and then a lot of those companies went bankrupt.

The difference between now and then is

Google's spending $100 billion.

These are real companies.

And they're spending it.

They're not borrowing.

They're spending it out of cash flow.

So it's real.

Now, the question is,

they're spending all all this money.

Are they going to be, what are the returns going to be on this investment?

And is it going to be enough?

And I don't know the answer to it.

It's too early to know.

Yeah, that's the big question, Mark.

I mean, a parallel I'd like to ask you about is there was a lot of vendor financing in 2001.

Yes, there was.

You know, Cisco would loan someone money to buy Cisco's things.

And we're seeing yesterday or two days ago,

NVIDIA gives $100 billion to OpenAI.

Who's giving $100 billion to Cisco,

to Oracle, I mean, who's giving 100 billion to NVIDIA.

That bothers me.

Okay, all right.

Yeah.

I don't like when things start to get vendor favorite.

It feels very insular.

It feels a little GE.

I don't know though.

I mean, I know GE.

GE was, that was a big part of that.

Interesting.

But since you are a little bit more positive on the economy than

at least me personally.

And you.

And me.

I'm a negative Nancy here.

We want to hear your portfolio review on our Gen Z young man here who has put all his money in some unique assets.

Wow.

And we want to hear what you think.

This is a surprise.

This is a graph so that you know it's good.

It's good.

It has a graph.

It's very professional.

No, it's only going up.

Bye.

Okay.

So we've actually each brought a portfolio to review with you to get you, because there's this amazing YouTube channel, for those who are not aware, called the Steve Eisman Playbook.

The Real Eisman Playboy.

The Real Eisman Playbook.

I was talking about a different channel.

The Real Eisman Playboy.

The Real Eisman Playblade.

Which, again, genuinely fantastic.

And we figure, actually, ironically, I listened to an episode the other day where you said that you do not have a step-by-step guide to investing.

And here's why you think about it in this broader way.

Now, what I said is I do not have

the Steve Eisman method for valuing all companies across sectors.

That's actually a very important point.

Okay.

So, you know, when you read a

financial textbook, they'll give you all these different methodologies of how to value a company.

PE, price to book, EV to EBITDA.

They go through the whole list.

But they don't like advocate anything.

And what I've learned over the years, and the reason why I don't have like one method, is that there are 11 sectors of the S ⁇ P.

There's actually a very important lesson for you viewers to pay attention to.

So there are 11 sectors of the S ⁇ P, and there are sub-sectors within those sectors.

And every sector and every sub-sector has a mafia.

And what I mean by the mafia is the people who

sell site analysts, buy site analysts, PMs, like the experts in the area.

Now, the reason why I know this was because I was like chairman of the board of the financial services mafia for a long time.

And what the mafia does over time is determine two things.

What are the data points that are important to track to invest in the sector?

And how do you value companies in the sector?

And it's different for each sector.

I see.

So, you know, for banks, it's price a tangible book.

For some other sector, it might be PE.

For REITs,

it's

AFFO.

Each sector is different.

What is AAFO?

AFFO is adjusted funds from operations.

It's like a version of EBITDA.

So they all have their own jargon.

But they all have different metrics.

So, you know, in tech, it could be PE or EV to EBITDA, or sometimes it's discounted cash flow.

It depends on the sub-sector.

The point being,

if you're going to invest in a sector, whatever sector it is, when I invest in the sector,

I accept the terms of debate.

I don't go in and say, they're valuing the sector on EV to EBITDA.

I disagree.

It's a pointless.

debate.

Now, you don't have to play.

You could say, I don't like this sector because I think it's too rich because I don't accept the way they value the companies, and that's fine.

But if you're going to play,

you have to accept the terms of debate.

Then you do your fundamental work and whether you like the company or not.

But you have to accept

how each sector values its companies.

I think it's a very important lesson.

Yeah, that's very interesting.

And I would like to see how you would.

Oh, wait, sorry.

Okay, so

I want to preface this before we get into it.

And I want to touch on how you seem relatively optimistic about the economy overall, at least in the U.S.

And

I want to push back or at least hear your answer about

for young people, especially right now, like if you're in your 20s, you're coming out of college, youth unemployment is really high.

Your track to

getting a, you know, a salary high enough that you could save up for something like a house, start a family.

Not great.

All of these things feel pretty bad right now.

They might push you towards certain investment markets as a Gen Z young man that you feel a little nihilistic and you want to kind of all in on certain things.

And I just want your

insight into

how

the average person and the difficulty in finding jobs right now and the jobs data that has continued to come out, how that matches up with your perspective on the economy.

I think even an open source.

Because I think it's very much like a two-part economy.

There's tech and all the stuff that's happening, which is very exciting and tremendous amount of money being spent.

And then there's what you're talking about, which is very true.

Most people can't afford to buy a house.

When you say that, though, when you say tech, because that is a sector where some of,

you know, especially younger people I know have.

found themselves laid off, unable to get jobs, because the sector has changed so dramatically.

There is all this investment in in AI, but a lot of these positions that had formed at these companies over the last 10, 15 years have disappeared.

People can't get jobs in the tech space right now.

True.

And

does that struggle, like what is the difference between that struggle and the success of tech or the hope of tech that you're talking about?

And now you're asking a hard question.

I don't have an answer for you.

I don't have a good answer for you.

I mean, I just know the money being spent on tech is real.

It's having some negative, real negative implications for people.

So the overall economy is not as good as it could be if all those people had jobs, but unemployment is still pretty low.

Yeah.

So I just don't know how to handle, I don't have a good answer for you.

What would be kind of a big red or green flag in because your opinion here seems pretty good.

If I started to say unemployment,

if what you're saying starts to cause massive layoffs and unemployment starts to go up, that's a different ballgame.

Okay.

But we just fired the head of the the BLS, so maybe we won't get as accurate data as we want as possible.

All right.

Well, as a young man myself, who's just trying to

make my financial dreams come true, and I want you to just take a look at us three, we're old souls, millennials.

We're all old souls.

Our Gen Z.

What do you got?

The Gen Z portfolio.

Okay.

So, the 11 most expensive Pokemon cards.

How do you feel about it?

So I recently decided I think I should buy or start getting at least shares in some of these cards.

Any thoughts on this?

On Pokemon?

Yeah, Pokemon cards cards.

It's exploding.

It's not my jazz.

What would the Pokemon Mafia say about such a thing?

I don't know what they would say.

I don't even know what the Pokemon Mafia is.

Well, I'll have you know, this market in the last five years,

thanks to maybe Logan Paul,

has really taken off.

So you don't think it's worth it to pay $420,000 for a little piece of money?

I have no opinion.

Safe answer.

Okay, but what about this?

Not a no.

Not a no.

Not a no.

So

I've been sports gambling a lot.

I watch every weekend avid NFL fan get into the NBA when it comes around.

MLB playoffs.

Really anything I could bet on, though.

Like if, you know,

what close, you know, the tennis player is going to come out in the finals of Wimbledon, you can bet on it now.

How do you feel about me putting about 20% of my earnings into this?

I don't feel good about it.

No, no, no, no.

I don't think you understand.

I'm dollar cost averaging into it.

I don't feel good about it.

Is it because of the sports?

You prefer hockey?

No, no, no.

Do you think I should do it?

You should actually know something about me.

I never gamble.

Never.

Ever.

Someone says,

I don't go to Vegas.

I don't do sports betting of any kind.

I've never seen the movie.

That's Vegas the movie.

But I didn't roll dice.

I don't gamble.

I never have.

You missed the extended cut where Steve Carell spends about an hour at the Black Jackson.

Yeah, that didn't happen.

That was the one inaccurate.

Someone said your big bet in 2007 was a gamble.

Is that, are you a gambler?

I didn't think of it as a gamble.

I thought, look, I did real fundamental research and I thought I would.

And I thought that was Jesus.

I have no opinion on that.

No opinion.

Bitcoin.

Well, more

crypto broadly, you know, you got Bitcoin, and that one's the biggest, I would say.

Like, I'm putting the largest share into that, but I'm putting stuff into maybe like 5% of my earnings into like Sheeb.

Sheep?

Sheb.

What's Sheeb?

Sheb, it's like, it's a coin, it's a coin, but it's not a real coin.

It has a dog on it.

But it's not Doge.

It's a different dog.

I don't have any opinion on Sheb.

I mean, one of our good friends invested a thousand.

I will admit,

I own a little bit of Bitcoin.

I thought he was going to say he he owns a little bit of a jealousy.

I do own a little bit of Bitcoin, but that's it.

I'm curious, an actual question about this.

Do you have any, you own a little bit of Bitcoin?

What's your personal, what's your personal view on the merit of Bitcoin specifically, like the good and the bad?

Because it's become something in the last like 15 years.

Bitcoin for me, I'm going to sit down now, started out as something where you used it to buy drugs on the internet.

That's what it was used for.

Right.

And now it's worth over $100,000 of Bitcoin, and it's a gigantic piece of value that institutions make decisions about now.

Huge transformation.

So I'm curious what your personality is.

So, my issue with Bitcoin is not Bitcoin per se.

So, my issue with Bitcoin, and why I only own a little bit,

is

like if you sit with

the Bitcoiners,

the philosophers of Bitcoin, and you say to them,

give me a thesis.

Like,

why do you own Bitcoin?

And they all basically say the same thing, which is that FIA currency, which is government currency, has been debased.

So much has been printed.

There are deficits,

et cetera, et cetera.

And then they'll say, but you can't like

short the dollar because all currencies trade relative to one another.

So the dollar trades relative to the Euro, the dollar trades relative to the yen.

So, but they've all been debased.

So just shorting one versus the other is a shell game, they say.

So therefore, buy Bitcoin as a hedge against the further debasement of fear currency.

That's the thesis that I've heard a million different ways.

Don't agree, but

with them.

Yeah.

No, no, I'm just saying that's the thesis.

Yeah, yeah.

So my problem, so I, so my response to that is, okay,

I'll grant you that.

For the sake of argument, I accept your argument.

Here's my problem with it.

If that is the argument, then on days where NVIDIA is down huge and interest rates are up huge and everybody's petrified that the world's going to end because Trump just announced Liberation Day,

Bitcoin should be up.

And on days where NVIDIA is up 5% and Oracle announces that

the backlog's up 455% and Oracle's up 10%, everybody's, and Nasdaq is up huge, Bitcoin should be down.

But it's the opposite.

And it's the opposite.

But it's the opposite.

So I don't know what to draw about that.

I don't know what to do about that.

I don't know why.

So therefore,

I own Bitcoin because every other schmuck owns Bitcoin.

I figure I'll be one of them.

But my problem is

I own an asset that acts contrary to its own thesis.

Yeah.

So I don't know what to do.

I just don't know what to make of that.

That's why I don't own more Bitcoin.

I don't know that answer.

I'm in line with that.

I'm in line with that.

I feel very validated.

Well, you have 20%

your money insurance.

What else you got there, Bitcoin?

What else?

What else?

What else?

I'm scared of this one.

This is.

Now, this is unironically something.

It's actually something you have.

It's a massive investment.

The next two.

He put his real money.

Guns.

No, not even guns.

Yes, I'm an arms dealer.

No, not even guns.

These are digital

skins that go on video game guns.

So when you're playing a video game, you might have a more brightly colored gun than your friend.

Yeah.

Because you bought this skin.

But here's the key.

On your video.

On your video.

On the screen, how much money did you spend on this knife or this knife?

Your knife?

That knife was about $14,000.

$14,000?

It doesn't exist.

It doesn't exist.

Oh, did you not realize that?

It's not real.

No, no, I'll have you know, a friend of mine bought me a real-life replica of it for about $20 that he gave to me.

So it's like I kind of

can we flip the page on no candy.

Okay, that's it.

Now it's Doug's.

Oh, wait.

I forgot about my last.

Oh, yeah.

There's one more.

You know, our lives are so, they're so digital these days.

And I figured, why not get ahead?

I'm a little late to the real estate train as a young Gen Z man.

And I thought to myself, I can get ahead of the real estate trend on the web.

Oh, no.

So I bought this

NFT apartment.

This is an NFT, a picture of an apartment.

And a picture of an apartment that you can have at all times.

You actually bought this.

You bought this for real.

And I bought this for real.

How much did it cost you?

About $900.

Wow.

You spent $900?

No.

I did.

I did say that.

I spent $900 a year.

What is it worth to apartment?

Cheap.

It's like, think about it.

It's like your parents or like your grandparents buying a home in the 40s or 50s.

Oh, I'm dark ads.

But they lived in it.

And it's going to skyrocket.

Tell him.

No.

He's losing all his money.

He's living it in the metaverse.

Okay.

All right.

Let's continue.

Let's go over a real portfolio.

From Doug here.

This is his portfolio.

This is what I would call the tech portfolio.

Okay.

So I try to diversify in a lot of different things.

I try to cover many different areas, specifically

just AI, Mag 7.

That's it.

Just the Mag 7.

And so I, Steve, often feel like you.

So

I will confess

that of the Mag 7,

I own every single one of them.

Except for Tesla.

Ah, interesting.

So what I would like to ask here.

By the way, I just want you to think about this.

Yeah, just from a perspective of people who do real fundamental work and how difficult it can be to short stocks.

So,

peak earnings of Tesla were in 2022.

The company earned, I think, like $4.50.

And this year, I think they're going to earn a buck fifty.

So, the earnings are down from 2022

through 2025, 60%.

The market.

And the stock is slightly higher.

So I was just thinking, imagine, you know, you're an analyst at a big hedge fund

and you go to your PM and you go to the PM and go, I got, I got this, I got this great thesis.

There's this company, it's called Tesla, I know you've heard of it.

And my thesis is that from 2022, the earnings are going to go straight down every year until we get to 2025, where the earnings will be 60% lower than 2022 and i think in 2026 they'll be lower still what do you think let's short the piss out of it and and you're a hundred percent right fundamentally

and the stock and

it's a cult so it doesn't work when you go crazy yeah so why why doesn't it work we did a whole episode where we sort of analyzed and debated tesla and because it's a cult

A cult can't justify a trillion dollar valuation.

It's a cult.

I think what people really sincerely believe, and this was Dan Ives on my show, The Realize and Playbook.

Realize the Realize.

His thesis is that Tesla is going to do very well with Robo-Taxis and AI and

robots and robots.

And just go to Sega.

And it's all going to be great.

And that's why you got to own Tesla.

And don't continue.

We're going to cultivate it.

And you know what?

Number one, you could be right.

And number two, there's no argument against it.

Like, you're arguing against something that'll happen in the future, and people believe it.

No, no, the argument is what you just said.

The earnings are down 60%.

That's that didn't work.

Yeah, but as an individual, you don't have to be part of that crowd.

You could be like, I don't want to keep owning this declining car sales company.

Okay, this actually, this is crazy.

This actually loops into a question I had about the crisis and the movie that I perfectly.

There's a part of the movie where, and you bring this up, the frustration of dealing with a company, a bank like Goldman, who refuses to adjust the price of the swaps in a way that reflects the the market because they set the price right correct and this feels similar in that all the underlying data that you're looking at is bad is indicates that tesla shares should be going down tesla doesn't set the price but in in that case tesla doesn't set the price right at least the market is setting the price in this position but

coming back to the movie for a second and and the actual crisis that happened you were talking about how you still don't know to this day why Goldman or these other banks weren't lowering the prices.

And I was wondering if you know they weren't lowering the prices,

they weren't lowering the prices because they own the stuff on their own balance sheet.

Yeah, and then you want to mark it down.

Okay, that's what they say in the movie as well.

I was wondering what part is confusing or not confirmed still then that you were explaining to me.

What happened?

The confusing part to me was not that some firms didn't mark down their books.

That I understood.

What I didn't understand was

there were two different types of securitizations back then.

One was called cash in and one was called cash out.

And don't ask me what those things are because I used to know what I don't remember.

But one was better than the other.

And we were short both.

Okay.

And so what happened was I got a call from and and generally Goldman's prices were honest.

Merrill Lynch didn't lower prices.

We didn't deal with them.

And

I got a call from my Golden salesman, who was a lovely guy.

And

he said,

we got to have a conference call with you.

I said, okay.

So we set up a conference call.

And it's me and all my guys are in the room.

And it's him.

And then it's like his boss.

And then his boss is like, this is serious.

Okay,

that's the big deal.

And I don't remember whether it was the cash in or the cash out, whichever one

was worse.

So let's say like

on the last day that we got prices for this stuff, the average price was like 70.

And we had shorted the stuff at par.

So we were already 30 points in profit.

So he comes on the phone and he says,

we checked our models and we realized that the methodology we've been using to price your bonds has been wrong.

And so we have to reprice

all your bonds of this type.

And so, okay,

so the last price was 70.

What's the price?

He goes, 80.

At a time when you expect the price to be going down.

Every day.

Yes.

Okay.

This is like late spring.

So then I said, okay,

well,

so the price is 80.

I said, so give me a two-way.

Meaning the price is 80, but

if the price is 80, I'll short more at 80 all day long.

Yeah.

Gimme, gimme, gimme, gimme, gimme.

But of course, there's a bid and an ask.

So, like,

it was 80.60

was the bid.

So they'd only let you short it.

So I could short.

So something that he says just repriced me from 70 to 80.

If I wanted to short more, I'd have to short it at 60.

But they're only marketing at 80.

Right.

To this day, I don't understand what happened.

Yeah.

Is it illegal?

Is that

what's why is it illegal?

They set the price.

There's no screen.

Well, then why would they ever even have to?

I don't understand what happened.

To this day, I don't know why.

It's a mystery to me.

What happened?

You know what?

That's so funny because I brought this up hoping to get a clarification.

Because in the video, you say, I don't really know what happened.

I don't know what happened.

To this day?

That's wild.

It feels so incentivized to lie at all times to you.

But still, it's better than 2008 sounds right now.

So real quick, one more in tech.

So we hit Tesla, which is, I think, valuable.

And actually in the Realizeman playbook, which I was watching, you spoke with both a VC friend and then the one this morning.

Yes.

Basically, how, you know, most of the stock growth right now in at least the SP 500 is coming from these tech stocks and from AI, where you're saying

right.

And the money being spent is at least coming from cash flow.

They're not in debt to do this.

Right.

But it's all hinging on AI generating enormous value.

And I think what is a very plausible scenario, I don't think this is real, obviously.

We all agree.

Tech's the

for two

years, we have been just like you trying to convince everybody that AI is perfect.

And

we're going insane.

Um, I'm just kind of curious how likely, even let's say it's the tech bubble in 2000, but on a smaller scale, that at some point, the next couple AI models come out, that iterative leap isn't as exciting as people realize.

They're starting to realize, wait, this really doesn't work for customer service yet, and the entire SP loses all of those gains thus triggering.

If there's an announcement, and I mean, if you listen to

NVIDIA, it's definitely not this year and it's not next year.

But let's say in 2027, you know, Meta comes out and says, we're cutting our CapEx budget in half.

Lights out.

The market's going down 20%.

Just poof.

Gone.

Do you feel as long as the CapEx?

As long as they continue to put the money there.

Now, you know, Saudi Arabia is now spending money and UAE.

There's now like the second derivative of people who are spending all this money building data centers all over planet Earth.

But

if they're, if the, I mean, it could be, in a sense,

a redo of the bubble in that, you know, Henry Blodgett, by the way, Henry Blodgett, I used to work at Oppenheimer, which was when I was on the sales side.

And in 1998,

Henry Blodgett was at Oppenheimer.

He was in the office across the hall from me.

And he got on the, he would get on the sales floor every single day.

And he said, internet's going to conquer the world and dynastic levels of wealth are going to be created.

And he was 100% correct.

But at first, the returns weren't there.

And that's why we had a tech recession.

So you could have a situation where there's the

timeline that people are hoping to have real returns on this stuff doesn't really materialize and people pull back.

And then eventually it does happen.

Because on the other end of a that could happen.

I mean, Zuckerberg was on a podcast a few days ago saying he's willing to he would rather lose a few hundred billion dollars to be early and then be too late.

But he expects it to be like three years.

If it's not.

that the returns will be there in three years yeah well he's saying

but if it's eight if it's eight seven you know then the hundred billion dollars i mean you know right now for example when you go on google and you and you do a search you get two responses you get your old search response and you get the ai response i mean the my response is better it's not the it's not the albert einstein so you know that there's we need more proof that it's going to be real returns that are coming but it's early you know so you can say whatever you want but it's hard to sit out you know as an investor i'm not sitting out no yeah i'm just another audience like if a lot of them are invested in the same thing as doug here where this stuff has been working right when it dips they buy it because it's going to work it's been working keep working and so you don't have a word of caution for them in that you think it's not yet okay okay not yet not yet you think because even the s you know even somebody like myself who puts a lot of the s p thinking well let me diversify i don't want to go all in on tech in reality i am investing into the tech growth really

you know the problem is like what would you diversify into proctor and gamble i mean well that brings you to my my next word.

Well, that is a great question.

That leads to the other millennials.

Let's go to the third portfolio here.

This is the doomsday.

The doomsday

portfolio.

The doomsday portfolio.

Okay, go ahead.

My portfolio, it consists of one asset.

It's gold.

Just gold.

Let me give you my thesis.

It's going to sound so different from what you said.

Earlier.

They went gold.

Doomsday.

Gold.

The U.S.

currency is a fiat currency that's getting overprinted and but you can't short the dollar because you'll so buy gold

and that's worked as a thesis it's

very well

so i'll give you the okay the um

the counter not that gold hasn't worked because it has congratulations

but i'll just give you the counter argument to the doomsday thesis sure

so The people who have the doomsday thesis have been making this the same argument for 40 years.

Yes.

Okay.

That's a long time to make an argument that doesn't work.

Call me crazy.

This is our year.

But this is our year.

You're 41.

But,

you know, the argument is basically too many deficits too big,

too much printing of currency.

It's been debased.

Buy gold.

Okay.

Now, buy gold has worked because people accept that argument.

But what most people never ask themselves is,

okay, so why hasn't the doomsday scenario happened?

Very fair question.

It's a fair question.

And I should say, like, if you're making an argument for 40 years and it hasn't happened, but all the data that you said is going to cause the doomsday happened, and yet it hasn't happened, the obvious question you should ask yourself is, why hasn't it happened?

So I'm going to answer your question.

I always say I'm not 40.

So it's like, I can't even do it that long.

I know that people have been guns and bullets and beans in their bunker.

I've been pushed a little more in this direction lately.

And the thing that made me

kind of come over the edge on it was a book that we recently read by Ray Dalio called How Countries Work Bros.

Ray Dalio is thinking cats and dogs are going to lie down together any moment.

Any moment it's going to happen.

And he's been making that argument only for 20 years.

But okay, to give, I don't agree with this guy on everything, but to give credit to his argument, I think it's indicative of something that does take a long amount of time.

And we're at a stage where

other countries are.

So my pushback.

Okay.

Why hasn't it happened?

So this is what people don't.

Look, most people don't understand anything about how the financial system of the world works.

It's just like it's very esoteric.

I mean, I do, it's what I do for a living.

So

the reason why the dollar is still the reserve currency of the world is not just that we're the biggest economy in the world, it's that

the entire financial system of planet Earth functions on treasuries.

So, for example,

banks all over the world lend to one another overnight in what's called the repo market.

This is like a multi-trillion dollar market.

It all functions on treasuries,

short-term treasuries.

If you're a sovereign wealth fund, you know, you're in Norway, and you need to park, I don't know, $500 billion

for five years.

You're going to buy five-year US treasuries because there's no alternative.

There is no alternative currently to treasuries.

And as long as there is no alternative to treasuries, we will remain the reserve currency of the world.

And so all the deficit problems that people are worried about, I think are academic.

Now, if

An alternative ever shows up, like people think Bitcoin is going to be it, or maybe it's China bonds, or something I don't even know.

And there's a real alternative to treasuries, then all the arguments about the deficit and the debasement of the dollar are much more important.

But until then, I think it's academic.

Dude, to even slightly push back, I would just say you can push back hard.

I think what you're saying makes total sense.

And I definitely don't want to be flash forward 40 years and I'm making the same argument.

And I don't want to do that.

But I want to say, I think there's a credible case to say that

gold is starting.

No currency can fill it in.

I totally understand that.

We're the cleanest, dirty shirt.

No one can go to the RB or the Euro or the yen.

However, country like China, country like Russia, country like all these countries have started to, on net, their central banks are owning more gold and less treasuries.

Their percentage of treasuries is either held flat or down.

Right.

And I think the idea would be you would.

trade with another country and then settle the difference in gold.

We're going to go back to the gold standard.

I don't know.

I don't think so.

I don't know.

Maybe not.

but that's what the direction of travel might be.

I don't think that's okay.

All right, that's fine.

I mean, put this way:

the price of the risk that you're talking about is a 10-year treasury yield.

If it was like a real problem and people were serious,

but if put this way, don't tell me what you're saying.

Tell me what you're doing.

Okay.

Okay.

Don't tell me that you're panicked about

the deficit.

Put your money where your mouth is.

Sell your 10-year treasuries and drive the yield up to 67%.

You're going to be a bond vigilante.

Yeah.

Then I take you seriously.

Otherwise, you're just pontificating.

Yeah.

I mean, where's the 10-year treasury yield now?

4.1.

You know, it's not done anything in three years.

Sure.

So the alarm bells of this actually happening are just not going off.

They're not going off.

Yeah.

So as we've done a lot of research into the U.S.

deficit, you just addressed this, and I wanted to ask you about it.

And you're saying it's academic.

I'm just wondering, how do you contact, I mean, is there a point at which, you know, we're 36 trillion in debt now and whatever, a trillion goes to interest every year in our budget?

At some point, even if we continue to stay as the reserve currency, does that become a problem?

Sure.

I mean, but I don't know where that is.

I mean,

I don't know.

Right.

And you don't want to waste your life trying to guess it.

I don't want to be Pete Peterson.

Right.

Who's Peterson?

Pete Peterson was the young guy who started this argument 40 years ago.

He's dead.

And you're alive.

That's one to zero.

That's a win.

Yeah.

Okay.

You touched on something a little bit before this, like that, that these

financial industry on the whole is difficult to understand.

It's difficult to engage and understand with the system that we all still participate or a part of in some way.

Do you have,

are there any misconceptions that are so pervasive that bother you that you wish you could have everybody understand?

Like any

big points of financial literacy that if you could just snap your fingers and everybody could just know, you would want to.

If everybody could know that lesson I gave you guys about how banks work,

they'd feel a lot more comfortable about banks right now.

I mean, the funny thing about bank level, did you ever see the movie?

I mean,

of course, I've seen this movie.

It's a Wonderful Life with Jimmy Stewart, the Christmas movie.

So

that scene where he's running a building and loan, which is a prototype of savings and loans.

It's like a little bank that makes home loans.

And there's a run on the bank.

That's what you see in that scene.

Everybody shows up and they want their money.

The point about

that scene, which people don't understand, is we want banks to be levered.

Here's why.

Back to that formula of return on equity equals return on assets times leverage.

So let's say the average, a 1% return on assets is not bad for a bank.

Because they have a lot of assets.

Because, no, because that return, just trust me, is not bad.

It's not great, not bad.

So

if you're levered 10 times, you get a 10% return on equity.

That's not terrible.

So let's say

the regulators come in and say, that's too much.

We don't want banks to be levered more than three to one.

Now, what happens is you still have the same 1% return on assets, but your leverage is only 3 to 1.

Your return equity is 3%.

Well, that's inadequate.

So the only way for a bank then to make a lot more money,

to generate sufficient return, is to charge a hell of a lot more in interest.

I see.

You follow?

So the point is, we want banks to be levered because

by generating, let's say, a 1% return on assets and they're lending, let's say, it's 6 or 7%,

which let's just say, for the sake of argument, is fine,

they generate an adequate return.

If

we don't allow them to be levered like that, all of a sudden, what they're going to charge in interest is so much higher so they can generate adequate returns.

So the formula about banks is really

it has to be a levered business model because if it's not levered enough,

it becomes prohibitive for the entire economy.

So

the message is you want banks to be levered, but you don't want them to be too levered because it's dangerous.

It's like little bear's porridge.

What's just right?

No, that I've never

Yeah, I've never thought about that.

Like if you cap it too low, the access to

the access to lending for everybody, whether it be.

They'd have to charge so much more on a home loan.

They have to charge double, triple to generate an adequate return, but who could afford it?

Right.

No one can buy cars.

No one can build houses.

I mean, the point about banks is what do they do?

They recycle money, which are your deposits.

That's the leverage.

They take your money that you put in the bank.

and they lend it out.

We want them to do that.

What we don't want is for them to have too much leverage so that if they have loss, if they make mistakes and then the losses are too high, they blow up or too concentrated in one or too concentrated in one.

Okay.

Yeah, it makes sense.

Absolutely makes sense.

I'm curious.

Part of why I've enjoyed this conversation so much is...

You actually learned something.

Well, one, I was like,

and two, it seems like with a lot of what you've discussed, one, you're just very willing to say, I don't know what's going to happen there.

But in part, you know, like the 40-day doomsday scenario, it seems, please correct me if this is wrong, that you're not as as worried about what might happen with, you know, the AI companies 20 years from now.

And it's more like, this is the current analysis of the market.

Is that roughly a fair way of how you approach the market?

Are you thinking much about those like 20-year in the future?

It's too far for me.

Okay.

People who think that that far,

you can say whatever you want.

Yeah, no one can verify.

What's there to say?

I'm happy to go out a year.

Okay, well, on that final note, then I want to ask, you know, for our audience, again, a lot of them are younger men and interested in finance, interested in business.

Probably check out the realizement playbook.

But

what are some areas of the market that you are looking at or investing in, or what's something your eyes on lately?

That

I'll give you one.

Yeah, okay.

This is a little weird.

Yeah, okay.

Well, not weirder than Pokemon cards or TSGO guns.

That's not weird.

That's not weird.

Trying to pull them from the NFT apartment.

And this is new for me.

Okay.

I only have one very small investment in it.

Marijuana.

Marijuana.

Now, like stocks.

Now, normally, I wouldn't touch these stocks, but

President Trump is making noise that he's going to do something here.

There's a thing today on Truth Social

where

on his,

whatever you call it, where he posts his stuff on Truth Social, he put out a video

basically lauding

and praising the effects of weed for elder Americans.

I swear to God.

Wow.

An entire video.

And I was, and, and, you know, the problem with the weed business has been that the regulation is all over the place.

You can't get banking.

And this is the second time he's done this in the last month.

So I'm starting to think maybe El Presidente is going to do something like significant in weed, and maybe we should own some weed stocks.

Right.

Oh, like federal legalization or something?

I don't know.

Watch the video.

It's shocking.

It's really shocking.

Do you chief that loud?

Not me, man.

I do not participate.

But you're saying we should all go and buy an ounce of weed.

I would talk to physical weed.

The only thing I would tell you is that we're going to be able to do

the weed standards.

Go on Truth Social, watch this video, make your own decisions.

Okay, I got to ask on that.

Because Trump is so, I don't know if you've noticed, a bit turmutous.

Changing the word.

Tumultuous.

I've gone through tumultuous.

It's evolved like the fucking Pokemon pokemon oh tumultuous um

so he's got these tremors and it feels like every time he said every week it feels like often what he was saying the prior week changes right so with something like this how how do you choose to put money behind something that the current administration is very small percentage i'd take like a one percent position okay and i'm hoping for the best but are you like a at this point in your life are you a dollar cost average in the s p kind of games do that kind of thing okay i buy stocks okay and i'm pretty fully invested and and and

this is like a new thing for me this marijuana thing i'm putting a little bit of money doesn't dollar cost average in a draft king draft king you're not you're not doing parlays on uh basketball you can win big

you can win so much bigger you certainly can

um

steve thank you so much for coming on the show you're very welcome this is fantastic

really thank you it was a lot of fun i want to reiterate it unironically the realizement playbook on youtube is fantastic i have been enjoying it so much deep dives with really interesting experts and steve does a weekly recap of of your your thoughts on what's going on.

It is fantastic.

And so I really recommend checking it out.

And just to close, this is this from what we were talking about before, this is your new main endeavor.

Like you started doing it.

This is what I'm doing full-time.

Yeah, that's awesome.

That's awesome.

And you have such an insane list of connections and guests that you've been pulling in to talk to.

And so, yeah.

And also, I think you mentioned you might bring us on for one of the Fridays.

I would love to have you guys on it for a Friday recap.

We're saying that on the recording because you can't take it back.

You guys can't get it back.

Now that you've realized our knowledge base,

He's got one edit note.

He's like, I don't want you guys on it anymore.

No, no, it would be a lot of fun.

I think so, too.

Thank you so much.

Thank you.

Appreciate it.

Thank you.